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China industrial deflation eases in June

By Abigail Townsend

Date: Thursday 09 Jul 2020

China industrial deflation eases in June

(Sharecast News) - China's manufacturing sector reported tentative signs of recovery in June, despite the ongoing impact of the Covid-19 pandemic on demand, official data showed on Thursday.
The producer price index fell 3.0% year-on-year, according to China's National Bureau of Statistics, the fifth consecutive month of deflation. It was marginally above consensus for -3.2%, however, and an improvement on May's 3.7% year-on-year decline.

On a monthly basis, PPI rose 0.4% against a 0.4% fall in May.

Miguel Chanco, senior Asia economist at Pantheon Macroeconomics, said: "The moderation was broad-based, with both commodities and manufacturing price deflation easing.

"The details show that the former was due in part to the fledgling recovery in global energy prices, which reduced the drag from oil extraction and chemicals for the first time in months. Meanwhile, the pull from the cost of processing non-ferrous and ferrous metals continued to ease.

"The direction of travel is encouraging, and we maintain that commodity prices will pull headline PPI out of deflation in the fourth quarter. This should further reduce the pressure on industrial profits, while simultaneously keeping additional cuts to the People's Bank of China rate corridor at bay."

Consumer prices, meanwhile, rose 2.5% year-on-year, in line with consensus and marginally above May's 2.4% increase. Core inflation, which strips out volatile food and energy costs, eased back from May's 1.1% to 0.9%.

Chanco said: "The uptick was driven in part by a re-acceleration in food inflation, to 11.1% from 10.6%, after having slowed sharply for three straight months, thanks to the normalisation of pork prices from their swine flu peak. Vegetable prices added to the upward push.

"Looking ahead, we expect the broad trend in CP disinflation to resume, once the correction in pork prices restart."

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