China producer price falls slow in April

Chinese producer prices declined at their slowest rate in 16 months in April, official data showed Tuesday, a positive sign for the world's second-largest economy.

The producer price index (PPI), which measures prices of goods at the factory gate and is a leading indicator of consumer inflation, fell by 3.4 percent from a year ago, the National Bureau of Statistics (NBS) said in a statement.

The figure was ahead of the median estimate of a 3.7 percent decline in a Bloomberg News survey of economists, and the indicator's best performance since December 2014.

Moderate inflation can be a boon to consumption as it pushes buyers to act before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.

The "significant moderation" of the PPI falls was largely due to rising commodity prices and higher production driven by infrastructure investment, Nomura analysts said in a note, adding: "PPI deflation may continue to narrow."

China's economy, a vital driver of global expansion, grew 6.9 percent last year, the slowest in a quarter of a century.

Producer prices in the Asian giant have been falling for years, and low consumer inflation had stoked fears of deflation until recently.

The consumer price index rose 2.3 percent year-on-year in April, the NBS said in a separate statement, in line with expectations and the same figure as the previous two months.

The figures may bring some cheer to the Chinese economy, which is grappling with slowing growth, huge overcapacity and mounting debt problems.

Month-on-month, the PPI increased by 0.7 percent, the second rise in a row.

NBS analyst Yu Qiumei said in a statement: "Price increases in some industrial sectors accelerated", including in natural resource extraction.

- 'L-shaped' growth -

Beijing is seeking to retool China's economy away from the investment- and export-led growth of the past to one more driven by consumer demand. It (Other OTC: ITGL - news) is also trying to reform lumbering, loss-making state-owned enterprises to make the sector more efficient.

But the transition is proving bumpy, raising fears of a hard landing, and global markets have been alarmed by slowing expansion.

The government has been loosening monetary policies since late 2014 and more recently has been stepping up investment, but growth in the first three months of the year still slid to 6.7 percent.

A source identified only as an "authoritative person" was on Monday quoted by the People's Daily, the Communist Party's mouthpiece, as saying that China was likely to have an "L-shaped" growth pattern, suggesting it will remain flat rather than rising in a U- or V-shape.

The "L-shaped" economy "will not end in one or two years" due to entrenched sluggish demand and overcapacity, the interviewee said, in a prominent article that started on the front of the broadsheet paper and took up the entirety of page two.

"Unlike what was the case in the past, economic growth will not continue to pick up and post high rates for several consecutive years once it rebounds," said the source.

The government must wean the economy from reliance on credit, said the article, warning of a possible financial crisis and adding: "High leverage is the original sin and the origin of high financial risks."

The comments have led some analysts to caution that the current boost in investment growth, which is fuelled by debt, may be short-lived.

Shen Jianguang, a Hong Kong-based analyst with Mizuho Securities, said in a report Tuesday: "The bottom line is that there appears to be sharp disagreement among top policy makers on future policy direction in China."

Source :AFP