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September 22, 2009

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Home » Business » Economy

Producer price drops easing

SHANGHAI'S producer prices slowed their decline in August for the first time in nine months, a sign that deflationary pressure may be easing in the economy.

Producer prices fell 8.1 percent from a year earlier, moderating from a drop of 8.3 percent in July, the Shanghai Statistics Bureau said yesterday.

"It likely ends the downward losses in producer prices that started last December," said Li Maoyu, an analyst at Changjiang Securities Co. "Demand for manufacturing and consumer goods seems to have stabilized, a trend we have seen reflected in consumer prices."

Producer prices, which measure prices at the factory gate, are generally considered a harbinger of future consumer prices. A deflationary spiral is harmful to the economy because people tend to stop spending and wait for prices to go down further.

"People have confidence in Shanghai," said Chen Lu, an analyst at Haitong Securities Co. "The city is hardly experiencing deflation because people are still buying, just more cautiously."

Data released last week showed Shanghai's consumer prices in August slid 0.6 percent on an annual basis, following a 1.9 percent drop in July. The figures were released in tandem with reports showing a recovery in industrial production and steady growth in retail sales and investment in the city last month.

"With a stabilizing economy, demand will soon return to its former level or even stronger," said Chen. "What we should watch is the possibility of inflation returning, which may make loose monetary policy difficult." Chen forecast consumer prices may turn positive in November.

Declines this year in both consumer and producer prices, measured on a year-to-year basis, reflect high inflation in 2008, analysts said.

The statistics bureau does not provide data on a month-on-month, seasonally adjusted basis.


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