China’s Factory Prices Ease as Commodity Market Surge Abates

• China’s Factory Prices Ease as Commodity Market Surge Abates

China’s producer price gains slowed more than expected in April, adding to signs of a potential easing of global reflation fueled by the world’s second-largest economy.

Key Points

• Producer price index rose 6.4 percent from a year earlier, versus a 6.7 percent Bloomberg survey estimate and 7.6 percent gain in March
• Consumer price index climbed 1.2 percent, versus 0.9 percent gain a month earlier, the statistics bureau said Wednesday

Big Picture

Resurgent producer prices, which rose the most in eight years in February, have helped fuel the world’s shift away from deflationary pressures and their recent easing signals that the boost may not endure for much longer. Moderated inflation also means stronger industrial profits may be harder to sustain and suggests corporate debt burdens may grow heavier.

Global commodities sank to a five-month low last week, nearly erasing the gains since Donald Trump’s surprise U.S. election win. The retreat has been led by industrial metals and oil, two sectors that fueled raw-materials price rises earlier this year on the view that faster global growth would boost demand.

Economist Takeaways

“PPI has already peaked in China and it’s on the way down further from here,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The shadow-banking crackdown and housing tightening policy will slow investment and a decline in global commodity prices will help China contain price pressures.”

“April’s price data add to the impression of moderating momentum in China’s economy heading into the second quarter,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report. “Rapid gains in producer prices had buoyed corporate profits, lowered real borrowing costs, and made the corporate debt mountain a little easier to scale. Slower price increases reduce those benefits.”

“Falling prices and destocking are reinforcing each other,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong, adding that growth is likely to slow after accelerating in the first quarter. “The Chinese economy passed its peak.”

“A softer PPI has two sides,” said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “It negatively affects corporate profit but helps put down the stagflation fears people had early this year. At least there’s no need to tighten from the inflation point of view.”

The Details

• Producer prices fell 0.4 percent on month, the first drop since June
• Consumer prices climbed on non-food inflation, as airline tickets and hotel rates strengthened during the tomb-sweeping holiday in early April and the Labor Day holiday weekend at the end of last month, the National Bureau of Statistics said in a statement
• Sectors have diverged with non-metal minerals, nonferrous metals and textile prices rising, the NBS said