China July producer prices slump to near six-year low

The producer price index fell 5.4 percent from a year earlier, the National Statistics Bureau said on Sunday, compared with an expected 5.0 percent drop.

The data showed pork price inflation was the most buoyant in July, with prices surging 16.7 percent due to a sharp fall in hog supplies. This means that the basket of goods and services that cost $100.00 in April 2015 now cost $100.70.

To make things worse, major commodity prices are lingering at multi-year low, and there are no signs of quick recovery.

“The Transport & Foreign Travel and the Food sectors also had a large impact in the year-over-year increase”. The drop, which exceeded the median estimate for a 5 per cent decrease, extends declines to 41 straight months.

The People’s Bank of China has lowered interest rates four times since November to support an economy expected to grow “at around” 7pc, which would be the slowest expansion since 1990.

China is targeting consumer inflation at around 3 per cent for 2015.

“The goal this year is to sustain growth, so policies will continue to stimulate demand”, said Zhou Hao, an economist at Commerzbank AG in Singapore. They forecast another interest rate reduction this quarter, as well as a cut of 50 basis points to the portion of deposits that lenders must hold in reserve.

A string of economic indicators suggest persistent weakness.

“Monetary policy will need to become more supportive”, the analysts said.

Yet, even the central bank has warned that looser policy may not be effective in lessening the pain felt by companies.

Factory-gate prices of excavated oil and natural gas dropped 34.6 per cent, while those of ferrous metal fell 20.1 per cent, according to NBS.

A report released by the government of China says the consumer inflation in the country rose to 1.6 percent last month, up by 0.2 percent compared to June.

“Weak non-food inflation and falling producer prices reflect a combination of subdued commodity prices, industrial overcapacity and weak demand”, Bloomberg economist Fielding Chen wrote in an analysis.