Two days after it revealed its huge $US586 billion two year reflation package, news that the China’s inflation rate continued to ease last month.
China said its consumer inflation fell to an annual rate of 4% last month, the lowest level for 17 months and back to where it was before a food shortage and rising petrol and oil prices pushed it higher to nearly 9% earlier this year.
October’s rate was down from 4.6% and is less than half the peak in January-February.
The figure is the lowest since May last year and explains partly why the central bank has been able to cut interest rates three times in two months (by a total of 0.81%) to try and boost economic growth and slow the slide.
And later yesterday, figures were released showing that the country’s export performance slowed last month.
China’s trade surplus set to a new record in October but export growth weakened, as did imports.
Exports rose grew 19.2% in October from the same month of last year to $US128.3 billion, but that was down from the 21.5% increase in September,
Imports grew by 15.6%, slower than expectations of 18% and down from the 21.3% rise in September.
The trade surplus swelled to a record $US35.2 billion, beating the previous monthly record of $US29.3 billion set in September. Analysts had forecast the surplus would reach $US32 billion.
Export growth to the US and Europe slowed, despite October being the important shipping month for goods for the Christmas retailing season..
Chinese manufacturing contracted by a record last month,whole growth in industrial output slowed to the slowest pace in six years in September.
China’s economy has slowed for five straight quarters. The International Monetary Fund predicts it will grow 8.5%, while the U.S., Japan and the euro region will be in recession.
About half of China’s toy exporters shut down in the first seven months of the year, the official Xinhua News Agency also reported. Sports sneaker makers have also closed down enmasse in Guandong province this year.
The consumer price figures were also made public a day after China revealed that wholesale prices (or producer prices) fell to a annual rate of 6.6% last month, a sharp improvement from the 9.1% in September.
If this keeps up, we will be talking about export price deflation next year from China (As the AMP’s Dr Shane Oliver suggested last month in a report).
That means the fall in oil and other commodity prices is starting to ease cost pressures on industry.
Economists said food prices again eased to an annual rate of 8.5%, compared with 9.7%.
In the first 10 months of the year, China’s consumer price index rose 6.7% from the same period of 2007.
That reflects the high levels of cost pressures in the first quarter. Inflation has been falling since April.
And news reports yesterday that China’s third biggest airline plans to idle 10% of its fleet, tells us why that huge reflation package was rushed through.
China Eastern Airlines said it was taking about a tenth of its fleet out of service as the slowing economy cuts demand for travel
The airline said it has grounded more than 20 planes as it cuts unprofitable routes, much in the way airlines from the US to Australia and the UK reacted earlier this year to rising costs and falling patronage.
China Eastern had a fleet of 225 planes at end of June. It operated 398 routes, 15% less than it had at the start of the year.
And Bloomberg reported remarks from a senior executive of a major Chinese steel maker, that production could fall 20% next year.
It said steel production this year might end up rising to 500 million tonnes, around 8% or 40 million tonnes, under previous forecasts.
Spot iron ore and coking coal prices are now 40% to 60% and more under contracted prices for 2009 as steel demand slows in China, Japan and South Korea.
