Chinese economic slack leaves room for further easing


15 October, AtoZForex.com, Lagos – There is still enough slack in the Chinese economy to justify further monetary policy easing, with the latest consumer inflation data showing a moderation in the Asian giant’s economy. The factory gate deflation also showed a long stretch of declines further adding to the Chinese economic slack.

Consumer-price index

Concerns about the state of affairs of the Chinese economy sent shivers through global markets. And the mixed data does not seem to be helping the situation. The latest consumer-price index data showed a 1.6 percent year on year increase in September. Although still a slowdown from a 2 percent rise in August and compared with a 1.8 percent median estimate in a Bloomberg survey.

Weakening producer-price index

Also, the producer-price index has recorded a 43 month streak of negative data, with the latest data coming at 5.9 percent, according to the National Bureau of Statistics.

Inflation has remained well below the government target of 3 percent all year, giving the PBOC additional capacity to spur lending even after cutting interest rates five times since November. Other worries still linger in the economy like:

  • A property downturn, which has capped prices for households
  • industrial overcapacity
  • low factory prices due to commodities rout and sluggish global demand

“It’s clear that price pressures are on the deflationary side,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing. “As consumer prices moderate, the PBOC will continue to expand credit.”

Food price inflation

Recent data also shows that food price inflation slowed to 2.7 percent from a year earlier, from 3.7 percent in August. Non food prices climbed 1 percent. Prices of consumer goods increased 1.4 percent, while services increased 2.1 percent.

Purchasing prices for China’s factories declined 6.8 percent from a year earlier in September, reflecting cheaper commodity prices. Producer prices for mining tumbled 21.2 percent and raw materials slumped 11.4 percent from a year earlier.

The weak PPI despite recovering global commodity prices “highlights the severe overcapacity problem and sluggish domestic investment demand, “economists at Nomura Holdings Inc. led by Zhao Yang wrote in a report.

It is now forecast to show that the China’s gross domestic product in the third quarter will show 6.8 percent expansion, according to economists’ forecast.

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