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Sancho Panza

Chinese Producer Prices’ Longest Slide Since ‘90S Continues

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Taipei Times 10/1/14

'China’s producer prices, a measure of the cost of goods as they leave the factory, extended their longest slide since the 1990s last month, adding to evidence that the world’s second-largest economy weakened last month.The producer price index fell 1.4 percent from a year before, the 22nd straight drop, and consumer price gains trailed forecasts at 2.5 percent, government reports showed.

The latest data followed declines in gauges of manufacturing and services.

“Producer price deflation means manufacturing is still facing lots of challenges,” said Shen Jianguang (沈建光), chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong, who formerly worked at the European Central Bank and the IMF.

With manufacturers already burdened by higher interest rates, more monetary tightening would not be a good choice, Shen said.

The Chinese Communist Party is trying to shift the investment-driven economy more toward consumer demand, while maintaining growth at what it says is a “reasonable” pace to sustain employment.

The economy probably grew 7.6 percent last year, the Chinese State Council said last month. That would tie 1999’s pace as the lowest since 1990 and be just above the 7.5 percent growth goal for the year.

Analysts surveyed by Bloomberg News last month forecast a 7.4 percent expansion this year.

“The fall in headline CPI [consumer price index] inflation will be welcomed by monetary policymakers,” said Louis Kuijs, chief China economist at Royal Bank of Scotland PLC in Hong Kong. “It confirms that, despite a pick up earlier in 2013, inflation is not an issue.”

Kuijs said he estimates price gains this year would remain “comfortably below” the 3.5 percent goal for last year.

The CPI rose 2.6 percent last year and the median estimate of 45 analysts surveyed by Bloomberg is for an increase of 3.1 percent for this year.

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