Deflation fears have returned to analysis of the Chinese economy for a second time in a month after there was no change in the near five year low annual inflation rate of 1.6% in October, and yet another steep fall in producer prices.
Economists say there was no change in month to month inflation from September to October, while the producer price index fell 2.2% from a year ago, its 32nd consecutive monthly fall as sluggish demand continues to flatten local price pressures.
The fall in producer prices was an acceleration from the 1.8% annual rate in September. Producer prices fell 0.4% from September, when they also fell 0.4% from August.
The PPI dropped 1.8% year-on-year in September, 1.2% in August and 0.9% in July (when it seemed to be only a matter of time before it turned positive). But that didn’t happen and the rate of fall started accelerating.
As a result, producer prices have fallen 1.7% in the first 10 months of the year, compared with the same period of 2013.
It’s these price moves, especially in the last four months, that have economists worrying about the emergence of deflationary pressures in the Chinese economy. If they do, it could cripple the economy, with its high level of debt, especially in property and in the so-called shadow financial system where many property developers and buyers have been finding funding.
Some economists say there’s clear evidence of disinflation in the Chinese economy, and deflation in the prices of many industrial inputs, especially commodities such as iron ore (which was over $US130 a tonne a year ago, now its just over $US75 a tonne). Food prices, traditionally a source of consumer price inflation, remain under control.
The consumer inflation grew 2.1% year on year in the first 10 months of this year, well below the 3.5% full-year target set by the government and perhaps the best sign of the way sluggish domestic and export demand have put a lid on price pressures, aided by no significant problems in the production and pricing of foodstuffs.
The Chinese government is hosting APEC in Beijing this week, and then there’s the G20 meeting in Brisbane later in the week. The lack of price pressures is good news and has given it room for more spending, if necessary.
Some economists claim that’s why the central bank last week revealed it had pumped more than $US120 billion into the Chinese financial system in recent months to keep liquidity levels high, and why the central bank made it clear late last week that it will ensure the financial system is liquid.
This week’s meetings are also why the government revealed moves late last week to boost imports, especially of scientific equipment and foodstuffs.
China’s central bank pledged on Thursday to maintain modest policy support to help the economy in the near term but stressed that it will not flood markets with cash.
China’s October trade figures were released at the week and showed a solid rise in both exports and imports, and another $US40 billion plus trade surplus for the month. In the past three months, China’s trade surplus has totalled more than $US130 billion, and has come despite a rise in the value of the currency in the same time.
Industrial production and other monthly data will be released on Thursday.
