The four-year slump in Chinese producer prices continued to moderate in April, easing the long strains on companies facing sluggish demand and high debt levels. China’s consumer prices remained steady.
The consumer price index rose 2.3% in April from the same month in 2015 – but eased 0.2% from March.
China’s National Bureau of Statistics said a sharp fall in vegetable prices offset another surge in pork prices (up 33.5%), up from the 28% jump in March.
Inflation appeared to be driven largely by higher food prices, rather than an improvement in broader economic activity which many global investors had been hoping for.
The continuing surge in pork prices (pork is China’s single most important food) has seen a number of governments (including the The Beijing municipal administration) announce plans to release reserves of frozen meat to try and control prices.
The Statistics Bureau said food prices actually eased 1.4% from March, indicating the influence of weaker vegetable.
As important as consumer prices are as an indicator, the big problem in China has been the long period of intense price deflation for much of manufacturing and others in the producing sector. Core inflation, which does not include food or energy costs, was up 1.5%, indicating there are, like Australia, no cost pressures in the economy (only deflation in the producing sector).
Producer prices in April fell 3.4% from a year earlier, compared with the previous month’s fall of 4.3% and 5.9% in late 2015. China’s factory prices have now been falling for more than 4 years, but April’s drop was the smallest since prices fell 3.3% in December 2014, and continues the trend which started at the end of last year.
While the prices of steel and other industrial commodities have risen sharply in the past two months thanks to higher credit, spending and intense speculation, the price of other products – such as oil, copper and other metals – have all fallen or weakened to varying degrees during this year. April actually saw widespread rises in commodities futures and physical prices (iron ore hit a recent high above $US70 a tonne last month, for example). That saw a rise of 0.7% month on month in producer prices, which is exactly what many in industry and government want to see, even though it might hurt financially.
The sell-off and price falls in the past week (iron ore is down more than 17% in the past six trading days) will show up in lower pressure on prices in coming months (that’s if they are sustained). Driving futures and other prices lower has been the crackdown on speculation by China’s three futures exchanges and regulators.
