econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 14 September 2015

China Faces Deflation Risk

Written by , GEI Associate

According to the National Bureau of Statistics of China, the consumer price index (CPI) increased 2% in August from a year earlier, at the fastest pace in a year, while the producer price index (PPI) fell 5.9%, extending declines to 42 months. The gap between CPI and PPI is the widest since 1994.

On the one hand, CPI inflation is now higher than the one-year benchmark deposit rate, crimping real interest rates for savers. The surge in food prices is the main factor that contributed to the pickup in CPI, affecting nearly 1.23% increase in the overall price level. As the official report shows, the price of pork increased 19.6% and the prices of vegetables were up by 15.9% from a year ago.

However, the increase in CPI is not a big challenge for the Chinese government. Problems such as pork supply crunch can be solved in the short-term. Despite the soaring food prices, non-food prices only went up by 1.1% year-on-year. Moreover, the increase in CPI was still significantly below the government's annual target of 3%.

On the other hand, the falling PPI is rather worrying. The latest figure suggests that China is facing a new risk of falling into deflation. As PPI represents the prices of products for manufacturers, PPI deflation would erode the profits of many companies, raise the burden of their debts, and push up real borrowing costs for the industrial sector, which in turn affects consumption and the entire economy. Last month, manufacturers laid off workers at a faster rate as their order books shrank. In addition, the declining PPI would also influence CPI eventually.

Weak domestic demand due to slowing down economic growth, lower overseas demand and overcapacity across many sectors are the main reasons that caused PPI to fall. Furthermore, as the official report shows, among major industries, PPI extraction of petroleum and natural gas decreased 37.9%; that of mining of ferrous metal ores decreased 20.4%. The de-inventory process in energy sector caused significant structural shifts in demand. Producer prices for consumer goods rather went down only by 0.3%.

The declining PPI fuelled expectations of further rate cutting to revive cooling demand and head off the risk of deflation. Meanwhile, monetary policy has its limitation in fixing the problem of structural overcapacity. As many analysts have suggested, other proactive fiscal policies such as additional tax breaks will also be needed.

Editor's note: GEI News has been tracking this growing deflation risk on a regular basis for more than three years. See, for example:

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Joan Robinson’s Critique of Marginal Utility Theory
The Truth About Trade Agreements - and Why We Need Them
News Blog
How To Stop Using Filler Words Like Um And Uh
02 December 2016: ECRI's WLI Growth Index Improvement Continues
Preliminary December 2016 Michigan Consumer Sentiment Highest Since Early 2015
October 2016 Wholesale Sales Improved
Rail Week Ending 03 December 2016: Finally A Positive Month
November 2016 CBO Monthly Budget Review: Total Receipts Up by 1 Percent in the First Two Months of Fiscal Year 2017
Infographic Of The Day: Copyright - Illegal Download
Early Headlines: Asia Stocks Mixed, Oil Steady, Bank Mafia, Trump To Remain TV Producer, US Life Expectancy Down, India Stocks Suffering, Park Impeached, China Struggles To Support Yuan And More
Heavy Metal And Hard Rock Albums That Went Certified Diamond Status
Down The Drain: Wastewater With The Most Cocaine
Apple's App Store Set For 5 Million Apps By 2020
How Can The UK Government Meet Its Legal Air Pollution Targets?
Most Gun Deaths In The United States Have A Tragic Motive
Investing Blog
Are Your Trade Entries Patient Enough?
Investing.com Technical Summary 08 December 2016
Opinion Blog
Looking At Everything: Trump's $1 Trillion Infrastructure Plan
The Global Financial Mess Is Due To Political Failure
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
09Dec2016 Pre-Market Commentary: Wall Street Set To Open Flat, But On The Green Side, WTI Crude Attacking Resistance, Investors Ready For A Breather
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved