China: Price pressures moderate sharply in December
Consumer prices were flat from the previous month in December, following November’s eight-month low of 0.3%. The reading was primarily driven by an increase in prices for fresh vegetables as well as for household appliances and services, which more than offset a sizeable drop in fuel prices.
Inflation declined from November’s 2.2% to a six-month low of 1.9% in December. The print was below the 2.1% that market analysts had expected. Annual average inflation stabilized at November’s 2.1% in December.
Producer price inflation, meanwhile, slowed markedly from 2.7% in November to 0.9% in December. The reading was well below market analysts’ expectations of 2.1% and the lowest result in over two years.
Economists at Nomura point out that:
“Rapidly falling inflation, especially factory-gate PPI inflation, is further evidence that China’s economy is slowing at a worrying pace. Slumping PPI inflation suggests corporate earnings will almost surely continue to fall in coming months. We expect PPI inflation to soon return to negative territory, reducing inventory stocks and exerting further downward pressure on China’s growth. On the positive side, falling inflation leaves more room for Beijing to roll out more aggressive policies to bolster growth and could lead to lower interbank rates and bond yields.”