The intense price deflation in China’s huge producing sector continues to ease, a sign that manufacturers and suppliers are feeling the benefit of the upturn in government spending, the surge in property investment and improved demand from offshore and internally.
Data released yesterday shows that Chinese producer prices fell at an annual rate of 2.8% in may – more than half the 5.9% rate in the December quarter of 2015.
The fall was better than market forecasts for a contraction of 3.2% and the 3.4% fall reported in April. But it was the 50 month in a row producer prices have fallen in China.
China’s statistics bureau said the improvement was due to price drops in fuel and metals-related industries as well as chemicals extraction and production, which together dragged factory gate prices down 1.7 percentage points.
Prices of vehicle fuel were also down 11.5% year-on-year, helping push prices for transport and communications down 2.6% for the period – falls which helped check the rise in consumer prices.
The Statistics Bureau said the consumer price index rose by an annual 2% in May, down on the 2.3% rate for much of this year and the 2.2% forecast from the market.
While pork prices again rose (the reason for the escalation in inflation in the past six months), vegetable prices continued for fall for a second month after a spike in March and helped put a lit on consumer price growth, along with weaker petrol and diesel (which is in oversupply in China) and lower communications costs.
Core inflation, which does not include food or energy costs, was up 1.6% year-on-year, up from 1.5% in April. Headline inflation fell 0.5% month-on-month, faster than the 0.2% slide in April.
Meanwhile, South Korea’s central bank unexpectedly cut the country’s benchmark interest rate to a new record low thanks to weak inflation and exports.
The bank cut its seven-day repurchase rate to 1.25%, and was the first rate cut since the bank last lowered rates a year ago this month.
