CPI falls 1.7 percent, suffers biggest drop since 1999
By Zhang Fengming |
July 16, 2009, Thursday
|
Online Edition
Online Edition
CHINA'S consumer price index recorded the biggest drop in June since 1999, or the fifth straight monthly decline, the National Bureau of Statistics said today.
Economists said a deflationary spiral is unlikely with inflationary pressures rising in the future due to China's sizzling credit growth, economic recovery and rising global commodities prices.
June's CPI, the main gauge of inflation, dropped 1.7 percent in June year-on-year, a further decrease from May's 1.4 percent drop.
China's producer price index fell 7.8 percent in June from a year ago, declining for the seventh month in a row. The May PPI tumbled 7.2 percent.
"The weakness in inflation is hardly surprising, and is also being seen in other economies around the Asia Pacific region," said Daniel Melser, Moody's Economy.com's senior economist. "In China, it reflects slackness in domestic demand."
However, economists said the overall risk of a deflationary trap for China appeared slim.
The high price levels of a year ago helped contribute to the current bout of price drops though global commodity prices picked up some steam this year.
The global crude oil price has gained 67 percent to US$62 a barrel this year. Copper prices rose 73 percent to US$5,100-plus a ton this year.
PPI continued to ease in China despite the recent hike in world oil prices as it will take a while for the climb in world commodities prices to trickle down to Chinese prices.
However, economists said eventually it will put upward pressure on prices.
Li Xiaochao, the statistics bureau spokesman, said the authority would keep a close eye on external prices trends, the rapid domestic credit growth and domestic supply to tackle deflation or inflation issues.
"The reality is that prices are currently dropping as some industries are still in over-supply," Li said. "However, the global price rises of raw materials are also impacting us."
Li said the statistics bureau was also closely monitoring the rapid credit growth, which is related to prices.
Banks in China extended 7.37 trillion yuan (US$1.08 trillion) worth of new yuan lending in the first half, up 4.92 trillion yuan more than a year ago. It already surpassed the credit target of 5 trillion yuan and economists said China's new yuan lending this year could easily surpass 10 trillion yuan with the current momentum.
"As the domestic economy gathers momentum, upward price pressures will resume and the country is in no risk of falling into a deflationary spiral," said Tine Olsen, a Moody's Economy.com economist.
There are already signs that the economy is in recovery. China's economy expanded 7.9 percent in the second quarter, pushing the first-half growth to 7.1 percent.
Retail sales, industrial output and fixed assets investment all grew.
Economists said a deflationary spiral is unlikely with inflationary pressures rising in the future due to China's sizzling credit growth, economic recovery and rising global commodities prices.
June's CPI, the main gauge of inflation, dropped 1.7 percent in June year-on-year, a further decrease from May's 1.4 percent drop.
China's producer price index fell 7.8 percent in June from a year ago, declining for the seventh month in a row. The May PPI tumbled 7.2 percent.
"The weakness in inflation is hardly surprising, and is also being seen in other economies around the Asia Pacific region," said Daniel Melser, Moody's Economy.com's senior economist. "In China, it reflects slackness in domestic demand."
However, economists said the overall risk of a deflationary trap for China appeared slim.
The high price levels of a year ago helped contribute to the current bout of price drops though global commodity prices picked up some steam this year.
The global crude oil price has gained 67 percent to US$62 a barrel this year. Copper prices rose 73 percent to US$5,100-plus a ton this year.
PPI continued to ease in China despite the recent hike in world oil prices as it will take a while for the climb in world commodities prices to trickle down to Chinese prices.
However, economists said eventually it will put upward pressure on prices.
Li Xiaochao, the statistics bureau spokesman, said the authority would keep a close eye on external prices trends, the rapid domestic credit growth and domestic supply to tackle deflation or inflation issues.
"The reality is that prices are currently dropping as some industries are still in over-supply," Li said. "However, the global price rises of raw materials are also impacting us."
Li said the statistics bureau was also closely monitoring the rapid credit growth, which is related to prices.
Banks in China extended 7.37 trillion yuan (US$1.08 trillion) worth of new yuan lending in the first half, up 4.92 trillion yuan more than a year ago. It already surpassed the credit target of 5 trillion yuan and economists said China's new yuan lending this year could easily surpass 10 trillion yuan with the current momentum.
"As the domestic economy gathers momentum, upward price pressures will resume and the country is in no risk of falling into a deflationary spiral," said Tine Olsen, a Moody's Economy.com economist.
There are already signs that the economy is in recovery. China's economy expanded 7.9 percent in the second quarter, pushing the first-half growth to 7.1 percent.
Retail sales, industrial output and fixed assets investment all grew.
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