Chinese Consumer and producer price inflation continues to fall, despite the rising amount of spending which is powering a stockmarket and a lending and investment surge.
At the same time China’s banks sharply reduced their lending in April.
Share markets in the country are up around 50% from their lows so far this year, but there’s no sign of an inflationary fires being stoked by that, or by the spending through the Government’s $US586 billion program revealed last November.
Consumer prices fell for a third successive month in April, dropping 1.5% over the 12 months ending April, after a 1.2% fall in March.
In April alone, consumer prices fell 0.2%, following a 0.3% drop in March, the statistics bureau said.
Producer prices fell 6.6%, which is close to the biggest fall so far recorded. That was after they fell 6% in march
That’s price deflation by any measurement, but from comments by analysts to Reuters, Bloomberg and the like, there doesn’t seem to be much concern about the deflation and the threat it could pose to Chinese consumer buying.
But it’s also good news for those in Australia and other countries in Asia who see China’s rebound as helping steady, then boost their economies.
No inflation is better than a surge in inflation and possible moves by the authorities to slow demand by putting up interest rates or cutting the growth in lending.
Even though world oil prices rose in April (and have been doing so for all of 200), they are still half the price they were a year ago.
So overall, costs for fuel and raw materials fell 9.6% in April.
This deflation is expected to persist for several months due to excess inventory in many industries.
As oil prices are unlikely to reach the reach the $US100 a barrel mark or more ($US147.70 in July 2008), producer prices and inflation generally will be much more subdued in China, even with the powerful boost to spending caused by the Government spending.
But deflation for a long period of time does bring its own problems if consumers postpone or drop purchases in expectation of lower prices, forcing companies to cut wages and investment.
Chinese consumers are no different to those in other countries. Deflation devastated the Japanese economy in the 1990’s and in the early years of this decade. Deflation is once again looming as the Number one problem in Japan this year.
In April of last year, inflation was 8.5% as pork prices soared because of a shortage of the meat, due to a disease called "blue ear".
The shortage saw farmers to breed more pigs, leading to an oversupply this year, forcing prices down sharply and food costs generally.
That will make the ruling Communist party happy as it will offset any social pressures building from the rise in unemployment.
Pork fell 28.6% in the year to April.
An exception among the declines for food was grain, which climbed 5.5%.
Non-food prices fell 1.5%, (as did consumer goods). Clothing fell 2.5%; services costs dropped 1.4% and utilities’ costs dropped 2.2%.
The fall in bank lending followed official caution about the pell mell rate of lending in the March quarter and in the month of March.
Figures released yesterday in beijing show that the country’s state-dominated banks gave out Rmb591.8bn ($US85.2 billion) in new loans in April, less than a third of the Rmb1,891bn in new loans extended in March, but still well above the monthly levels of recent years.
In the first quarter, Chinese lenders answered the government’s call to open the credit taps and get the economy moving again, extending more than Rmb4,600bn in new loans – more than the entire amount of new lending in 2007. Around Rmb5 billion had been allocated for all of 2009.
That led to fears among regulators that money was being directed illegally into the stock market or financing stimulus projects of dubious commercial value.
There have been claims the $US19.5 billion to pay for the Chinalco move to boost its stake in Rio Tinto, is coming from stimulus lending.
There were fears this could fire up inflation again, but April’s third month of price deflation has eased those fears.
