China's producer price index falls at slowest pace of 0.4 percent in 11 months in Dec
China's factory-gate inflation is likely to turn positive soon as the
economic recovery gains more traction, after the country's producer
price index dropped by the slowest rate in 11 months in December,
experts said on Monday.
The fall in the PPI, which measures factory-gate prices, narrowed to
an 11-month low of 0.4 percent on a yearly basis in December, compared
with a 1.5 percent decline a month earlier, the National Bureau of
Statistics said on Monday.
On a monthly basis, the PPI rose by 1.1 percent last month, notching
the fastest growth level in four years and rose by 0.6 percentage point
from November, the NBS said.
"The steady recovery in domestic demand and the sustained rally in
international prices of some commodities continued to push up the prices
of industrial goods," said Dong Lijuan, an NBS statistician, citing the
rising prices of oil, iron ore and nonferrous metals.
The PPI is expected to end the negative growth streak that has lasted
for almost a year as early as this month as COVID-19 vaccine rollouts
consolidate global recovery expectations and props up commodity prices,
said Wu Chaoming, chief economist at Chasing Securities.
The rising factory-gate prices may lead to a further recovery in
industrial profits, Wu said, adding that China's inflationary pressure
from commodity prices would be controllable this year, while a full
recovery in global output remains unlikely.
Factory-gate prices have been gradually recovering since the trough
in May, when the PPI registered a 3.7 percent slide, sending the
full-year PPI down by 1.8 percent from a year earlier, the NBS said.
The consumer price index, which gauges consumer inflation, is likely
to tick up this year as demand further stabilizes, especially for
nonfood goods and services, but in a softer manner than factory-gate
prices due to the high base of pork prices, experts said.
The CPI rose by 0.2 percent year-on-year in December, compared with a
0.5 percent decline in November, amid the pickup in consumer demand,
the cold weather that pushed up food prices, and rising production
costs, the NBS said.
The index grew by 2.5 percent in 2020 from the previous year, the
bureau said, within the government target of about 3.5 percent.
This month, the CPI growth may bottom out at negative 0.1 percent
year-on-year before a gradual rise to around 1.6 percent at the end of
the year as demand recovers, Nomura Group economists said in a note.
The temporary negative CPI growth would not point to deflation as it
would be mainly driven by pork prices. China's core CPI growth, which
excludes volatile food and energy prices, is estimated to come in at 1.1
percent for 2021 amid steady economic recovery, economists at the
Japanese financial company said.
The core CPI rose by 0.4 percent year-on-year last month, edging down from 0.5 percent in November, the NBS said.
A mild inflation situation in 2021 is unlikely to trigger major
changes in monetary policy, said a Guotai Junan Securities research
Nevertheless, some experts warned about the risk of an upside
surprise in inflation, especially due to higher commodity prices that
could increase the cost of downstream manufacturers.
Though a high base of pork prices and restoring pork supply will mean
downward pressure on the CPI, other factors all point to the opposite,
said Lynda Zhou, chief investment officer for equities in China at
Fidelity International, a global asset manager.
Such factors include recovering global demand, insufficient
investment in commodity production, industry leaders' inclination to
raise prices and higher rents, she said.
A recent private survey indicated that rising commodity prices have
pushed up the cost pressure facing Chinese manufacturers and led to
hesitation in hiring decisions in December, according to media