China's Factory Gate Inflation and CPI Growth Slows in March

China’s factory inflation lost pace for the fifth straight month, while consumer price index (CPI) shied away from a four-year high, but still indicated a balanced supply and demand for the overall economy.

Data from the National Bureau of Statistics (NBS) showed that producer price index (PPI), a main gauge for goods at the factory gate, was up by 3.1 percent on a yearly basis in March, compared to 3.7 percent in February and was just a bit short from the expected 3.2 percent.   

NBS said the moderation was normal, considering a high comparison base, and that the steady gain in the index was due to better results in supply and demand.

This is the fifth month that China’s factory-gate inflation has eased, which is further reinforcing the outlook of a potential slowdown in the world’s second-largest economy, on account of a growing borrowing costs and a cooling property market on the back of Beijing’s debt risks crackdown.    

PPI lost 0.2 percent month-on-month, against a 0.1 percent drop in February, while raw material prices climbed by 5.1 percent in March, versus 5.9 percent.

The modest factory gate inflation indicated more pressure on earnings in the country’s industrial sector, after profits rose to their quickest pace in six years in 2017. Income at industrial businesses accelerated in the first two months of the year from December, but still slowed growth for the entire year of 2017.

Overall Economy Still Stable despite CPI Slowdown  

China’s CPI, a main measure of inflation, grew 2.1 percent in March from the previous year, missing forecast of a 2.6 percent increase and coming in lower than the 2.9 percent gain in February.

CPI was down by 1.1 percent on a monthly basis, compared to a 1.2 percent rise in February.

Chief economist Deng Haiqing stated that the slight CPI gain is one reason that the country would not be seeing a higher inflation this year and that the central bank will not tighten policy, given that CPI growth is below 2.5 percent.  

NBS cited seasonal drops in food, transport, and tourism prices for the shortcoming. Food prices declined 4.2 percent, adding 0.86 points to the month-on-month fall in the CPI.

As travel demand dwindled after the Lunar New Year holiday, prices of air tickets, travel agency charges, and long-distance bus tickets slumped 18.7 percent, 11.7 percent, and 4.7 percent respectively.

NBS said even with the fluctuations, China’s CPI still rose at a generally stable rate. Analyst Zhang Yi also believes the overall economy remains strong despite the downward hit on the index.

Core CPI, which excludes volatile food and energy prices, climbed by 2 percent in March, slowing from 2.5 percent in February.

Senior economist Li Wei said policymakers would not be focusing on inflation this year, but will instead concentrate on tasks, such as reducing leverage.   

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