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October 17, 2017

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Consumer inflation slightly cooler

CHINA’S consumer inflation cooled slightly in September while producer price inflation unexpectedly accelerated to a six-month high on strong domestic demand for raw materials.

The Consumer Price Index, a main gauge of inflation, rose 1.6 percent year on year last month, 0.2 percentage points lower than August and remaining below 2 percent for the eighth consecutive month, the National Bureau of Statistics said yesterday.

The reading met a market consensus forecast of 1.6 percent.

Meanwhile, the Producer Price Index, which measures costs for goods at the factory gate, rose by a six-month high of 6.9 percent year on year, 0.6 percentage points faster than in August.

That compared with market expectations of 6.3 percent.

Sheng Guoqing, a bureau analyst, said consumer inflation was mainly dragged by lower food prices. The factory-gate inflation was sustained by metal industries.

Food prices fell 1.4 percent, bureau data showed. Pork prices dropped 12.4 percent year on year, lowering the CPI reading by 0.36 percentage points.

Rises in non-food prices accelerated to 2.4 percent year on year, driven by a 20-year high of a 7.6 percent increase in health care prices.

Excluding food and energy prices, the core CPI increased 2.3 percent year on year last month, up slightly from August’s 2.2 percent. Economists believe the index, free from factors vulnerable to short-term supply changes, can better reflect long-term price trends.

In the first nine months of the year, the CPI climbed 1.5 percent from a year earlier. The official target for the whole year is 3 percent.

Commenting on the PPI, Sheng said price increases accelerated in the metal and chemicals industries while slowing in the coal and oil and gas sectors.

On a month-on-month basis, the PPI rose 1 percent in September.

Wen Bin, a research fellow with China Minsheng Bank, said the commodity price rises were mainly caused by improving domestic demand and limited supply due to capacity cuts and stricter environmental regulations.

The PPI has been soaring since the end of 2016, evidence of recovering economic growth, albeit with rising concerns of overheated factory activity and chain reactions in consumer prices.

Analysts predict producer inflation will gradually stabilize for the rest of the year and consumer prices will remain subdued.

“The big picture of industrial overcapacity is unchanged, which means the PPI growth will become milder on a year-on-year basis,” said Zhang Liqun, of the State Council’s Development Research Center.

The Bank of Communications said in a note that the higher PPI indicated price hikes may expand from upper-stream industries to the middle stream, and continue to improve corporate profits.”

Government efforts to cut capacity and tighten environmental protection may continue to support the PPI at above 6 percent, the bank said.

China International Capital Corp said in a report that the PPI data left limited room for monetary easing and consumer inflation may warm up to 2 percent by the end of the year as price rises for industrial products may start to affect consumer prices.

For the first nine months of the year, the CPI climbed 1.5 percent from a year earlier, lower than the government’s goal of 3 percent for the whole year. The PPI climbed 6.5 percent year on year.

Earlier economic indicators for September showed strong expansion in the manufacturing sector as the official Purchasing Managers’ Index rose to 52.4, the highest this year.

Growth of imports and exports both accelerated in September, indicating sound international and domestic demand.

China will have no problem meeting its economic growth target of around 6.5 percent this year, and may even beat it, the statistics bureau head said last week.

The official third-quarter GDP growth is due on Thursday.


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