Despite the weak trade data for July (especially the 12.5% slide in imports in the month from a year earlier), there are now clear signs that the bout of intense price deflation which has hit the country’s huge manufacturing sector is about to fade away.
China has experienced more than four years of producer price deflation which peaked at an annual fall of 5.9% in the last four months of late last year. But since then the improvement has been palpable.
June saw the deflation halve to 2.6% from that peak, and figures out yesterday showed another improvement with the decline in July estimated at minus 1.7%.
But according to the National Bureau of Statistics, the improvement in industrial deflation was largely the result of a rebound in prices of metal mining and processing, including steel. The prices of petroleum and natural gas extraction, and of coal mining, continued to rise from June.
But year on year producer prices for mining fell 5.6% in July, while raw materials generally dropped 4.5%.
At this rate the deflationary trends will have faded away by year’s end. The July reading was the lowest for two years.
China’s National Statistics Bureau pointed out that in monthly terms producer prices returned to marginal growth with a rise of 0.2% from June. That reversed the 0.2% fall in June from May.
The Bureau said a substantial rise in the cost of fresh vegetables due to heavy flooding throughout China and a summertime uptick in travel as pushing up the monthly gauge. Looking to annualised price changes it noted slowing growth of pork prices and a 4.3% rise in medical costs.
Higher vegetable and egg prices also added 0.11% to the CPI in the month. Inflation for food, tobacco and liquor fell about one percentage point to 2.8% growth year-on-year. Overall, food prices were up 3.3% in July, compared with the 4.6% rise in June. Prices of pork, China’s staple meat, rose 16.1% against the 30.1% jump percent in June. The 16.1% rise in pork prices last month pushed up the headline figure by 0.42 percentage points
Economists said the bad flooding and impact on veegtable and pork prices in some parts of the country could boost the CPI in the next few months.
The impact of higher fuel costs also eased last month.
Chinese consumer price inflation remains well below the 3% official target, despite the upward pressure from rising pork and vegetable prices over the past year or more. That’s testimony to the weak price pressures in the economy (which are now showing up in the easing producer price deflation).
We will get more data on the economy on Friday with the monthly production, retail sales and urban investment figures.
