Chinese inflation eased in September as the economy continues to meander, with deflationary cost pressures in the industrial sector showing no signs of easing.
A sharp slowdown in food prices saw China’s consumer price index fall back from a 13-month high to a surprisingly low annual rate of 1.6% last month from the 2% rate in August that was boosted by a sharp surge in pork prices. The CPI rose a whole 0.1% in September from August.
Pork prices eased last month and food price pressures slowed by a whole 1% month on month, hence the big fall in the overall CPI. The CPI rose 1.4% in the first nine months of the year against a government target of 3.5% for the full year – which clearly won’t be met.
The news didn’t go down well with investors across Asia and sharemarkets tumbled – Tokyo by a large 2%. The ASX 200 lost 0.1% after being much lower during trading. Shanghai also eased.
But the big concern remains producer price deflation (not inflation). Producer prices fell an annual 5.9% in September for the 43rd month in a row, reflecting excess supply of housing materials and raw materials, and overcapacity in heavy industry.
That was the same rate of deflation as we saw in August, which was the biggest fall since the end of the GFC in 2009.
Chinese producer prices fall again
.png)
Imported oil, gas, coal, copper, iron ore and other commodity costs and overcapacity among domestic producers are leading driving prices lower among the country’s huge industrial base.
The recent yuan devaluation (now wiped out by a sharp rise in the value of the currency in the past two weeks) had no impact on import costs or producer prices.
The September trade data on Tuesday showed imports tumbled for the 11th straight month in September, thanks to falling commodity prices and soft demand. That was despite sharp rises in import volumes of iron ore, copper and to a lesser extent crude oil.
Exports fell for a third month, albeit less than expected (but volumes jumped to many key markets, including the US).
And at the start of the month, the two regular surveys of manufacturing activity showed the country’s factory sector shrank again in September as new orders dwindled, private and official surveys showed earlier this month. The service sector showed a cooling as well, but remains in an expansion phase.
The government is due to release September industrial output, retail sales and investment data on Monday, along with third-quarter GDP data.
