China’s producer deflation eased to its slowest decline in nearly two years in July, the National Bureau of Statistics (NBS) said Tuesday, a positive sign of improving conditions for the world’s second largest economy.
The producer price index (PPI), which measures the cost of goods at the factory gate, fell 1.7 percent year-on-year last month, less than the 2.0 percent decline estimated by economists in a poll by Bloomberg News and significantly narrower than the 2.6 percent fall in June, as a rebound in some commodity prices reduced deflationary pressure.
Protracted declines in PPI bode ill for industrial prospects as they put off customers who seek to delay purchases in anticipation of lower prices in future, starving companies of business and funds.
Chinese PPI has been negative for more than four years but narrowing declines in the last three months have fuelled hopes the world’s second-largest economy could be reaching the bottom of a painful slowdown.
The improvement in PPI “should benefit the corporate sector’s profitability” researchers with ANZ said in a note, but added that it will mainly help state-owned enterprises, which dominate heavy industry, so that the impact on private sector investment will be limited.
Producer price inflation should continue to strengthen and will “turn positive” in the second half of 2016 as commodity prices stabilise, they said.
But they warned that until Beijing’s plans to cut coal and steel capacity have “made significant progress, the PPI should not stay strong”.
China’s GDP expanded last year at its slowest rate in a quarter of a century as Beijing strives to effect a difficult transition in its growth model away from reliance on exports and fixed-asset investment towards one driven by consumers.
Consumer inflation eased slightly in July, Tuesday’s data showed.
The consumer price index (CPI) — a main gauge of inflation—rose 1.8 percent on-year, the NBS said, lower than June’s 1.9 percent rise but matching expectations in a Bloomberg survey.
“The heavy rain had (a) rather big impact on vegetable prices in some areas,” NBS analyst Yu Qiumei said in a separate statement, adding that prices in Anhui, Hubei, Hebei and Beijing increased 16.2 percent, 14.3 percent, 13.3 percent and 12.8 percent respectively month-on-month.
“The summer holiday fuelled the seasonal increases in prices of some services,” Yu said. Air ticket prices and tourism agency charges rose 12.1 percent and 6.5 percent respectively month-on-month, reports AFP, Beijing.