Inflation continues to fall in China and Japan; in fact it’s deflation, especially in Japan where the fall in commodity prices (especially iron ore and coal) from April 1, has had a big impact.
That helped explain the biggest fall in 22 years in Japan’s wholesale (producer) prices: down 5.4%.
China’s consumer prices fell again in May, the 4th month in a row they have fallen and continuing the trend established earlier this year.
They were down 1.4% from May 2008 after April’s 1.5% decline.
Food prices dropped 0.6%, non-food prices fell 1.7% and the core CPI, which excludes food and energy prices, fell 1.3% year-on-year.
But Chinese producer prices tumbled a record 7.2% in the year to May, the biggest fall on record, as the fall in some commodity prices (coal and iron ore) kicked in.
In both cases there’s a real sense of rising price deflation: that’s an experience both countries have experienced in the past, but they are taking different tacks to try and minimise the damage.
China is stimulating, heavily; Japan is spending as well, but the amounts are nowhere as great as China’s
But in a warning in the official China Securities Journal researchers from the State Information Council said the government should prepare for the risk that inflation may bounce later this year and rise faster than the economic growth rate.
The researchers forecast a return to inflation in the third quarter, as do a number of private sector economists who believe the worst of the deflation has passed (for consumers at least).
The official target for inflation this year in China is 4%. The official growth target is 8%: the chances of either being met look tough.
So far inflation is running well below that and would have to rise sharply in the back half of the year to reach that level. Growt6h is running at 6%.
It’s a sign of the still sluggish state of activity in the wider economy (and lower foods prices).
The sharper fall in producer prices is the clue to that fact.
Led by oil and copper (and some grains) commodity prices are up around 14% so far this year, but the main index measuring price changes, the Reuters/Jefferies CRB Index, is 39% lower than it was in May 2008.
It of course rose strongly from to peak in July of last year, before falling away, led by the plunging price of oil.
China’s State Statistics Bureau yesterday said the 7.2% fall in the PPI was deeper than the 6.6% drop in the year to April and steeper than the 4.6% fall over the March quarter (on the March quarter of 2008).
Prices of production materials fell 8.8% in May from May last year and the PPI for January to May fell 5.5%, so the fall is accelerating as the year goes on.
The change in May’s inflation rate from a year ago is dramatic.
In May last year consumer prices were rising at an annual rare of 7.7% and that had the authorities worried. Food prices were soaring (especially pork which was in short supply because of an infection that had cut production).
More pigs have been raised since then, leading to an oversupply and falling prices.
Easing grain prices and prices for cooking oil have also helped take the heat out of consumer inflation. Pork meat prices fell 32% on a year ago.
China’s property market showed signs of stabilising in May.
According to the National Development and Reform Commission, property prices in 70 cities fell 0.6% in May from May 2008, better than the 1.1% fall in April.
On a month-on-month basis, prices rose 0.6% from April. That led some commentators to claim that property had moved into an upturn.
The fall in Japan’s PPI was the biggest drop since March 1987, according to the report from the Bank of Japan in Tokyo (Source).
Japanese producer prices have been falling since January as the recession and stronger yen have combined to push down costs across the board for industry.
Industry hasn’t been able to benefit because demand and output have plunged with industrial production down at an annual rate of more than 30% in April and exports down more than 40% as well for the first five months of the year.
The Bank of Japan’s overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, slid 43.4% in May from May last year.
(BHP Billiton yesterday revealed that its 2009-10 coking coal settlements had seen an average 58% price cut from the record 2008-09 levels.)
That’s partly why the central bank has forecast a 7.5% fall in the PPI in the year to March 2010 and a further 1.8% fall in the year to March 2011.
A separate report showed that machinery orders fell 5.4% in April, much more than the median estimate for a 0.6% fall forecast by economists.
South Korea’s producer prices made a downturn in May for the first time in almost seven years on the strengthening local currency, the central bank said Tuesday.
According to the Bank of Korea (BOK), the producer price index fell 1.3% in the year to May, after rising 1.5% in April. It was the first drop in producer prices since August 2002.
The fall in May was due to lower commodity prices, with the impact amplified by the stronger local currency, which pushed down prices of imported materials and goods.
