China factory prices rise at slowest pace in more than 2 years

By BLOOMBERG

BEIJING • China’s factory inflation slowed sharply in December, continuing the slowdown for a sixth straight month to the weakest level since late 2016 on softening demand and lower commodity prices.

The Producer Price Index (PPI) rose 0.9% in December from a year earlier, while the Consumer Price Index rose 1.9%, according to the National Bureau of Statistics (NBS). Both were lower than in November and the median estimate of economists.

Sharply decelerating pace brings back fears of a return of the deflation which ravaged corporate profits in 2012-2016. That would squeeze corporate profitability and put pressure on global inflation, as export prices usually follow those at factory gate.

“Producer inflation will probably remain low in 2019, though it’s hard to say whether deflation will come back,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp in Singapore. “Lower PPI will hurt profits at upstream industrial companies, which are mostly state firms, but for the downstream private firms, cheaper raw materials are not necessarily bad.”

Slowing inflation or outright price falls for oil and gas, fuel, chemicals, mining products and base metals all contributed to the slower PPI rise, the NBS said in a statement released with the data yesterday.