China producer prices slide to six-year low in July

Producer prices in China fell to a six-year low in July, while consumer inflation remained subdued, signalling the economy still faces deflationary pressures and Beijing has room to unveil more economic support measures.

Pork prices are an important component of China’s consumer price index basket, the weighting of which is a secret though some economists estimate that food accounts for as much as 30 percent of the index. The PPI also declined 0.7% in July from June.

The survey collects prices from more than 63,000 outlets including grocery stores, supermarkets, shopping malls and agricultural trade markets across 500 cities and counties in the country, the NBS says.

The July reading dipped to the lowest level since the end of 2009 and marked the 41th straight month of decline. That reflects a combination of overcapacity in traditional industries, a weak property sector and sluggish exports.

The central bank has already cut interest rates four times since November and lowered the RRR for big banks by 150 bps.

For the first seven months, CPI increased 1.3 per cent year on year.

Slowing economic growth and declines in commodity prices have helped keep China’s consumer inflation in check, with some analysts raising the prospect of looming deflation given weakness in other price yardsticks.

The data indicate weak demand for Chinese factory products both at home and overseas and suggest that interest-rate cuts and efforts to stabilize local government finances have yet to spark a recovery. It said that monetary policy wouldn’t be determined by the price of a single commodity. “I think the government will be more proactive in its fiscal spending in the months ahead”, he said.