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Chinese factory gate inflation holds steady

ReutersBEIJING (Reuters) — China’s annual producer price inflation held steady in July, with prices for key raw materials up slightly on expectations of deeper capacity cuts going into the winter months of heavy pollution, while consumer inflation slowed slightly.

The producer price index (PPI) rose 5.5 percent last month from a year earlier, unchanged from June, the National Bureau of Statistics (NBS) said on Wednesday.

China’s economy has posted solid growth this year as commodity prices recovered, helping boost the industrial sector, while mild consumer price gains have left policymakers room to maneuver should growth falter.

On a month-on-month basis, the PPI rose 0.2 percent in July, after three months in the red, with the NBS attributing this to a rise in prices of commodities including steel and non-ferrous metals.

Prices of commodities futures including steel rebar began to rise again in June and have continued to surge through early August, underscoring concerns over tight supply amid pollution inspections and strong restocking demand.

China has eliminated around 120 million tons of low-grade steel capacity and 42.39 million tons of crude steel capacity in the first half of the year, equivalent to 84 percent of its target for the whole year.

Weaker factory price inflation could start to weigh on profits at China’s large — and often heavily indebted — industrial firms, who have benefited from a strong commodities reflation cycle over the last year.

Chinese policymakers have clamped down on expansion of the money supply, and broad credit growth has also moderated, which could weigh on any further industrial recovery in China.

“The current level of consumer inflation is so mild that the PBOC will be comfortable resuming the deleveraging process in the financial sector,” Iris Pang, ING economist wrote in a note ahead of the data.

China’s consumer price index slowed slightly to 1.4 percent in July from a year earlier.Speech

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