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July 11, 2016

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China’s consumer prices up 1.9% in June

CHINA’S consumer inflation cooled further in June and factory gate prices continued to fall, pointing to continued weak domestic demand.

The Consumer Price Index, the main gauge of inflation, grew 1.9 percent from a year earlier in June, down from 2 percent in May and 2.3 percent in April, the National Bureau of Statistics said over the weekend.

Yu Qiumei, a bureau researcher, said a 1.4 percent month-on-month drop of food prices, accounting for nearly a third of the CPI basket, contributed to the lower CPI reading from May.

Prices of vegetables, fruits and eggs were lower than May while pork prices rose slower, Yu said.

But prices in the non-food sector rose 0.2 percent from last month, led by gasoline prices, and the start of summer holidays also drove up flight and travel costs.

The Producer Price Index, a measurement of inflation at the factory gate and an indication of future prices at the consumer end, fell 0.2 percent month-on-month, ending consecutive increase of three months.

On a year-on-year basis, the PPI fell 2.6 percent, the 52th consecutive month of decline, although narrowing from May’s 2.8 percent and April’s 3.4 percent.

HSBC chief China economist Qu Hongbin said the inflation data indicates that domestic demand has not yet recovered and the deflationary pressure lingers.

“The reading of PPI is slightly lower than expected. Even though commodity prices have been on the rise, it’s difficult to see factory gate prices rebound as domestic demand is still weak,” said Qu. “Poor confidence among companies will result in slower increase in investment and thus hurt the improvement in prices.”

The Australia and New Zealand Banking Group said in a note that food prices may increase because of recent floods that hit 11 provinces in China.

That, along with a low reading of PPI in July and August last year, will help stabilize price level in the next two months, reducing the necessity of aggressive monetary easing measures, ANZ said.

The latest inflation figures were generally in line with June’s services and manufacturing indicators pointing to weak economic momentum.

The official manufacturing PMI edged down to the neutral reading of 50 in June, ending three months of expansion, while the non-manufacturing PMI rose to 53.7 from May’s 53.1 points, reversing declines in the previous two months.

The NBS last month announced adjustments in calculating GDP that it says “better reflects the contribution of innovation to economic growth.”

Research and development expenditures that can economically benefit companies will no longer be calculated as intermediate consumption, but as fixed capital formation, the bureau said in a statement. The growth rate for 2015 was revised upward by 0.04 percentage points with the new method.




 

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