China’s producer prices slow for seventh straight month, raising deflation fears

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China’s factory-gate inflation slowed for a seventh straight month in January to its weakest pace since September 2016, raising concerns the world’s second-biggest economy may see the return of deflation as domestic demand cools.

Consumer inflation, meanwhile, eased in January from December to a 12-month low due to slower gains in food prices, official data showed on Friday, despite the Lunar New Year holiday, which typically pushes up demand for food.

China’s producer price index (PPI) in January rose a meagre 0.1 percent from a year earlier, data from the National Bureau of Statistics (NBS) showed, a sharp slowdown from the previous month’s 0.9 percent increase. Analysts polled by Reuters had expected producer inflation would slow to 0.2 percent.

While tame inflation gives authorities the flexibility to ease monetary policy to shore up economic growth, deflationary risks could further hurt corporate profitability.

On a monthly basis, producer prices have already been falling over the past three months. In December, PPI fell 0.6 percent, moderating from a 1 percent decrease in December.

“It is too early to say China has entered the deflationary environment, but the risks definitely have heightened,” said Raymond Yeung, Chief Economist of Greater China at ANZ, adding that profitability of upstream industries will come under pressure.

Earnings at China’s industrial firms shrank for a second straight month in December, putting pressure on policymakers to support industries hurt by slowing prices and weak factory activity.

Data showed prices for raw materials fell in January for the first time in over two years, swinging from an 0.8 percent rise in December. Price rises in the production sector also turned negative.

Source: Reuters

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