Inflation in China eased last month due to falling food and commodity costs, with analysts saying that yesterday’s figures give policymakers room to unveil measures to kick-start the stuttering economy, including interest rate cuts.
The producer price index rose a less-than-expected 10.3 percent year-on-year last month, extending a slowdown in November, while the consumer price index (CPI), a key gauge of retail inflation, was 1.5 percent — down from 2.3 percent a month earlier and also short of forecasts, the Chinese National Bureau of Statistics reported.
The consumer inflation slowdown came on the back of easing vegetable prices, bureau senior statistician Dong Lijuan (董莉娟) said, adding that the accelerated slaughter of live pigs helped pork costs to moderate.
Photo: EPA-EFE
The cost of the staple meat dropped 36.7 percent year-on-year, bureau data showed.
“The probability of a rate cut in the first [this] quarter is high, and the closest window is this month,” China Renaissance Securities Hong Kong Ltd (香港華興證券) macro and strategy research head Bruce Pang (龐溟) said.
CPI “will not be a concern in 2022” and the core measure, which strips out volatile food and energy costs, will stay muted below 1.5 percent, Pang said.
Sheana Yue (余惠悅), China economist at Capital Economics, said that the current trends suggest inflation concerns are not likely to hold back the People’s Bank of China from “further loosening measures including policy rate cuts.”
Some commentators say that the central bank could cut borrowing costs as soon as next week, marking the first since April 2020.
Producer prices were helped as “there were outright declines in the price of most upstream industrial goods, such as coal and metals, thanks to the fall in global commodity prices,” Yue said.
While worsening COVID-19 outbreaks could disrupt supply chains again, and “with coal supply improving and property construction slowing, we see further downside to the price of industrial metals and energy,” Yue said.
While a narrowing gap between consumer inflation and factory gate costs reduces a squeeze on profit margins, HSBC Holdings PLC senior economist Jing Liu said that “more easing is needed, as the consistently low core CPI points to growth pressure.”
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