China Factory Prices Plunge As Auto Sales Snap Slump

By Glenn Dyer | More Articles by Glenn Dyer

China’s factory prices fell at the sharpest rate in four years in April, further highlighting weakening industrial demand in the world’s second-largest economy as the coronavirus pandemic undermines global growth.

The producer price index (PPI) fell 3.1% from a year earlier, China’s National Bureau of Statistics said in a statement on Tuesday, compared with a 2.6% drop forecast by analysts and the 1.5% decline in March.

And the slowing in growth in China’s consumer price index (CPI) continued in April with an annual rise of 3.3%, slower than the 4.3% increase in March. Month on month inflation fell 0.9%.

That was largely due to slowing food price growth, which rose over 18% in March. But it still rose 14.8% last month, led by another big rise in (96.9% ) in pork prices which have been the driver of the surging in the CPI for the past year.

China’s non-food prices rose by 0.4% in April.

China’s statistics bureau said the producer price declines came from the slump in global crude oil and commodities prices.

Nearly 60% of the deflation came from fuel extraction and processing and chemical manufacturing. Oil and gas extraction reported the largest year-on-year price fall of 51.4%, more than double the 21.7% drop in March.

Other data out this week showed China’s banks continue to lend heavily.

As China’s central bank has cut key interest rates and released more money for lending, banks extended 1.7 trillion yuan ($US240.05 billion) in new yuan loans in April, significantly more than a year earlier.

China’s trade data for March and April suggest the economy is trying to recover from its first economic contraction on record in the three months to March when the economy was paralysed by the mass lockdowns to slow the spread of the virus that has killed more than 4,600 people in the mainland.

But the spread of the virus beyond China, especially in major markets like Europe, the UK, the US and Brazil now threatens to push the global economy into a deep recession.

The IMF reckons the global economy will see a 3.1% slide in GDP this year – the steepest on record outside the Depression and far worse than the GFC. In fact growth this year will fall 6.3% from the 3.3% rise in GDP forecast in January for 2020.

Capital Economics Senior China Economist Julian Evans-Pritchard said demand-side pressures are likely to persist for some time with tumbling energy and food prices bringing headline gauges lower.

“That should remove any concerns the People’s Bank of China has about the impact of monetary easing on inflation,” Evans-Pritchard said in a story on Reuters.

“If anything, lower inflation will increase real interest rates and strengthen the case for further rate cuts.”

Meanwhile, China’s vehicle sales rose in April, ending 21 months of falling sales, thanks to a surge in sales of heavy trucks. Car sales though fell for yet another month.

Data out earlier this week showed vehicle sales rose 4.4% in April compared to the same month a year ago to just over 2 million units, according to the China Association of Automobile Manufacturers (CAAM). It was the first month that sales have grown since July 2018.

Commercial vehicles, including heavy trucks, helped push that figure into positive territory.

Sales of such vehicles increased by 32% in April. Passenger car sales, meanwhile, dropped 2.6%.

Even with April’s sales gain, the market remains weak. 5.8 million vehicles were sold in the first four months of 2020, down 31% from the first four months of 2019 because of the huge falls in February and March.

CAAM can’t see much light either in the rest of 2020. It forecasts that sales for the year as a whole could be down 15% to 25% compared 2019, depending on how effectively the pandemic is controlled in coming months

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →