The Great China Inflation Rebound Isn't Looking So Hot After AllBy
Producer prices are forecast to post second-straight 5.5% gain
Biggest trading nation played a major role in global reflation
China’s great reflation is showing further signs of being a let-down.
Producer price gains have eased back from February’s eight-year high as activity in the property and infrastructure sectors slows amid a government crackdown on risky lending.
Prices at the factory gate rose 5.5 percent in June from a year earlier, the same pace as May, according to a Bloomberg survey of economists before the data due for release July 10. While that’s still a rapid clip, it’s still well off the 7.8 percent reading four months earlier.
Even if producer inflation surprises with a higher-than-forecast reading it will likely reflect commodities price gains as importers have restocked inventories rather than a resurgent upswing, said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. "It doesn’t change the global picture of lower-than-expected inflation this year, said Hu, who forecasts PPI will climb 5.6 percent.
Producer inflation "may decline moderately in June, or even hold up flat, as we expect sequential PPI to start stabilizing," Eva Yi, an economist at China International Capital Corp. in Hong Kong, wrote in a recent note. Domestic commodity prices started to consolidate after their correction earlier this year, said Yi, who forecasts PPI rose 5.4 percent last month.
Weaker readings would be a disappointment for global policy makers. Until earlier this year China, the world’s biggest trading nation, had been reviving hopes of a worldwide inflation spurt as bubbling price pressures flowed out through the nation’s exports.
As factory prices rebounded, the hope was China could boost inflation, a key ingredient that’s been missing from an otherwise robust recovery. The International Monetary Fund in April raised its world growth forecast for to 3.5 percent this year, up 0.1 percentage point from January.
Instead, forecasters are seeing little evidence that prices are taking off elsewhere, even as some of the world’s biggest central banks flag the need to tighten policy.
U.S. inflation hasn’t been responding to the long-term decline in unemployment, and analysts worry there are few signs of it doing so. Euro-area inflation slowed in June to its weakest pace this year and Japan continues to be dogged by years of tepid price gains.
Faster inflation, within reason, helps ease the burden of servicing debt and usually triggers wage gains that in turn feed into greater consumption and economic activity.
To be sure, China’s not the only factor keeping a lid on inflation. Falling oil prices are a drag, along with reluctance among employers to lift salaries -- especially in developed economies.
But taken together with diminished expectations that U.S. President Donald Trump will push this year for a stimulus package centered on tax cuts and infrastructure spending, the outlook for inflation continues to remain subdued.
Goldman Sachs Group Inc. projects China’s producer price increases will remain robust. They likely rebounded with a 5.9 percent gain in June, economists including Yu Song and Maggie Wei wrote in a report this week. Their estimate, which isn’t among the 27 in Bloomberg’s survey as of late Thursday, exceeds all of the projections that are included.