China’s factory price deflation has once again eased to 1.8% year-on-year for the seventh straight month, meeting market expectations. On the other hand, the producer price index (PPI) fell 1.7% for the month, the National Bureau of Statistics said on Tuesday, compared with the previous month’s fall of 2.6%.This signals the improvement in conditions for the nation’s producers and adding to evidence that the world’s second largest economy is stabilizing and analysts expect producer price inflation to turn positive this year for the first time in more than four years, but the recovery at the factory gate is unlikely to lead to a rebound in private investment, which has fallen to record low growth rates.
Prices fell at their slowest pace in two years, taking pressure off the central bank to cut rates as policymakers turn their focus to structural reforms and swelling credit. Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong even said that the PPI may turn positive by the end of this year and that is one of the most positive developments of this year. But, overall muted inflation can open the interest-rate cut channel, he added.
Food prices continued to moderate, rising 3.3% in July compared with a 4.6% gain in June. Prices of pork rose only 16.1% versus a 30.1% increase in June as demand for the Chinese staple meat continued to cool from peaks hit earlier this year. Demands for construction materials has also increased because of a government-led building spree, but higher prices are also due in part to speculation in China’s commodities futures market, which has pushed up Shanghai rebar futures up by 50% this year.
Healthcare costs rose 4.3% year-on-year in July, up from a 3.8% gain in June, which reflects a wider improvement in demand for such products, Merchants Securities economist Yan Ling in Shenzhen said. It also shows the increase in non-food inflation, which is 1.4% compared with June’s 1.2% gain. Similarly, rises in other price categories showed increasing demand for a wider range of consumer goods and services including horticulture, pet care and retirement services, Yan also said.
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