China’s Factory Deflation Eased in June With Recovery on Track




imageForex17 hours ago (Jul 08, 2020 10:18PM ET)
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(C) Reuters. China’s Factory Deflation Eased in June With Recovery on Track

(Bloomberg) — China’s factory deflation eased back in June as the economic recovery continued, while consumer inflation ticked up.

  • The producer price index registered a 3% decline last month from a year earlier, compared with the 3.7% drop in May.
  • The consumer price index rose 2.5% on year following a 2.4% gain the previous month, the National Bureau of Statistics said Thursday. That was the same as the median forecast.
  • The statistics bureau earlier published statements dated 2019 which were then withdrawn.

Key Insights

  • Pork prices, a key element in the country’s CPI basket, rose almost 82%. Pork prices have started rising again due to supply issues including floods and restrictions on meat plants overseas which had seen coronavirus outbreaks.
  • Core inflation, which removes the more volatile food and energy prices, slowed to 0.9%.
  • The recent serious flooding in central China may affect food supplies, which would push up prices for corn and rice.
  • However, “supply-side shocks caused by floods tend to be temporary, unlikely to create persistent inflationary pressure,” China International Capital Corp. economists Liu Liu and Peng Wensheng wrote in a note this week. The growth rate of consumer inflation should slow in the second half of this year due to the high base last year, they wrote.
  • The “economic recovery should continue following the recent rebound in the second quarter. Domestic consumption will likely improve further with continued policy support and activity normalization, assuming no significant re-emergence of new cases, while infrastructure investment is likely to strengthen,” UBS economist Wang Tao wrote in a note this week. “We expect policy to remain supportive, while the recent recovery has reduced incentive for bigger stimulus in the near term.”

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  • The official gauge of manufacturing activity climbed in June, providing more evidence of a gradual recovery from the historic contraction in the first quarter. The earliest indicators for the economy also pointed in the same direction.
  • That progress and the recent rally in the stock market provide some evidence of a rebound, but with the pandemic still hitting global demand, it’s unclear how long that will last.

(C)2020 Bloomberg L.P.

China’s Factory Deflation Eased in June With Recovery on Track

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