China’s factory inflation slows as manufacturing stumbles

BEIJING: China’s factory inflation slowed in May as faltering manufacturing hit demand, reinforcing worries about cooling growth in the world’s second-largest economy, while a surge in food prices could add to consumer grievances about living costs.
The slowdown was driven by declines in industrial commodities prices and was in line with the downbeat factory activity seen in May. It also comes amid China’s worsening trade dispute with Washington, which analysts fear could trigger a global recession.
China’s producer price index (PPI) in May rose 0.6 per cent year-on-year, the National Bureau of Statistics (NBS) said in a statement on Wednesday, in line with analyst expectations and lower than a 0.9 per cent uptick in April.
In contrast to the softer upstream prices, consumer inflation accelerated, driven by soaring food prices, which rose at their fastest pace in seven years, as bad weather hit fruit production and African swine fever wiped out pork supply.
However, while analysts expect some upside risks to the headline consumer price index in coming months, most do not expect retail inflation to constrain the central bank’s hand in easing monetary policy to prop up slowing growth.
“With economic growth unlikely to stage a strong recovery and industrial commodity prices likely to remain subdued, we don’t see much upside to PPI and non-food CPI,” said Capital Economics in a note on Wednesday.
Producer inflation gauges in China, closely tracked by analysts and investors, are seen as bellwethers of industrial demand in the economy.
As the trade war between Washington and Beijing heats up, investors and analysts are increasingly concerned the dispute could erode global demand for production.
China’s exports unexpectedly returned to modest growth in May but imports fell at the sharpest rate in nearly three years.
Raw material prices fell 0.6 per cent last month while price gains in upstream sectors such as oil and natural gas extraction eased.
Despite Beijing’s effort to step up big-ticket infrastructure projects, sluggish demand has dragged growth in the prices of construction materials. — Reuters