Customers shop at a clothing store in Haikou, Hainan Province, China. Consumer... Read More
China’s factory-gate prices fell in September from a year earlier for a record-tying 31st month. Input-cost moves influence China’s export prices, meaning consumers from New York to Berlin pay less for toys, tools and T-shirts.
For the global economic outlook, the 1.8 percent drop in China’s producer-price index in September is more worrying, signaling deepening slack in capacity.
“If Chinese factories are paying less for commodity imports, they will charge less overseas and can therefore export deflation,” said Shane Oliver, a Sydney-based global strategist at
AMP Capital Investors Ltd., which oversees about $131 billion. “It’s all part of the world running below full capacity, resulting in the risk of deflation.”
The International Monetary Fund last week cut its outlook for global growth in 2015 and said Europe’s policy makers may need to do more to stave off declining prices. For China, the PPI decline and the slowest consumer inflation since January 2010 add to signs of a loss in growth momentum.
“This highlights the weakness in the demand side of the economy,” said Tao Dong, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong. “Manufacturing is fairly weak. Bank credit is weak.”
Zhou Xiaochuan, governor of the People's Bank of China, said this month that inflation... Read More
Property Slump
A property slump in China is pushing down the nation’s annual growth to what analysts project is the slowest pace since 1990. People’s Bank of China Governor Zhou Xiaochuan said this month that inflation will probably “stay mild.”Consumer inflation remains well below the government’s targeted ceiling of about 3.5 percent this year, suggesting room to stimulate the economy. China’s central bank cut the interest rate it pays lenders for 14-day repurchase agreements for the second time in a month yesterday.
“Inflation is not a risk at all -- deflation is the real risk in China,” said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. “Policies should be relaxed now. Cutting interest rates, cutting banks’ reserve-ratio requirements, are all possible policy tools.”
A stronger yuan also helps cut prices of fuel, iron ore and other raw materials that keep China’s manufacturing engine humming. China’s currency appreciated 0.07 percent against the U.S. dollar last month -- the only one to advance out of 24 emerging-market currencies tracked by Bloomberg as the greenback rallied.
Yuan Effect
“The yuan got stronger last month, imports got cheaper, and inflation slowed,” Bill Adams, senior international economist at PNC Financial Services Group in Pittsburgh, wrote in an e-mailed note. “Prices of many non-energy categories of goods are also falling, a sign that deflation remains a problem for the world’s second-largest economy.”In the U.S., import prices from China fell 0.1 percent in September from August, according to the Labor Department, the second decline in three months.
The IMF on Oct. 7 cut its outlook for global growth in 2015 to 3.8 percent from a July forecast of 4 percent. The U.S. will expand 3.1 percent next year, compared with 1.3 percent for the euro area and 0.8 percent for Japan. China is projected to grow 7.1 percent, its slowest since 1990, according to IMF data.
Lower factory-gate prices may add to deflationary risks in Europe and pressure other Asian economies, which have been increasingly competing with Chinese exports, AMP’s Oliver said.
Below Capacity
“The Chinese economy is running below capacity,” he said. “To the extent that China is a global supplier, it adds to the deflation threat.”Trade numbers released earlier this week showed China’s exports rose more than estimated from a year earlier and imports unexpectedly rebounded. Analysts at banks including Everbright Securities Co., Australia & New Zealand Banking Group Ltd. and Bank of Communications Co. said over-invoicing and over-reporting may explain part of the export surge.
The statistics bureau is scheduled to publish its third-quarter gross domestic product report on Oct. 21, along with September industrial production and retail sales and January-September fixed-asset investment.
Purchasing prices for fuels fell 2.8 percent in September from a year earlier, today’s data showed. Ferrous metals declined 6.1 percent, while textile raw materials dropped 1.4 percent.
“Australian or American consumers might benefit from the price drop, but could it offset the slowing investment demand in China?” HSBC’s Qu said. “Don’t forget that as raw-material demand falls and prices fall, profits at raw-material suppliers will fall, as well as their workers’ incomes.”
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