China’s factory gate prices reduced at the fastest pace in seven years in May 2023 and quicker than forecasts as demand weighed on a slowing production sector and affected the fragile economic recovery, Gulf Today reported.
Factory-gate price is the price at which a factory sells goods to wholesalers. China has been tackling a sharp decline in prices with factories getting less for their products from key overseas markets. The producer price index (PPI) for May dropped by 4.6 per cent, witnessing a decline for an eighth consecutive month, Gulf Today reported citing the National Bureau of Statistics (NBS).
It demonstrated the fastest reduction since February 2016 and is bigger than the 4.3 per cent decline, Gulf Today reported citing a British news agency poll. Zhiwei Zhang, chief economist at Pinpoint Asset Management, said, “The risk of deflation is still weighing on the economy.” He further said that recent economic indicators indicate that the “economy is cooling.”
China’s economy witnessed a fast growth than expected in the first quarter. However, recent indicators demonstrate that the demand is rapidly weakening with exports, imports and factory activity falling in May.
The consumer price index (CPI) witnessed a rise of 0.2 per cent year-on-year, speeding up from a 0.1 per cent increase in April, Golf Today reported. However, it missed a forecast for a 0.3 per cent rise. Food price inflation slowed to 1.0 per cent year-on-year from 2.4 per cent in the previous month. Food prices reduced by 0.7 per cent on a month-on-month basis.
The Chinese government has set a target for average consumer prices in 2023 to be about 3 per cent. Prices increased by 2 per cent year-on-year in 2022. Julian Evans-Pritchard, head of China economics at Capital Economics, said that they still think that a labour market will place upward pressure on inflation later this year.
However, Julian Evans-Pritchard noted that it will remain within the comfort zone of policymakers, Gulf Today reported.
Policymakers have repeatedly signalled their willingness to lean on China’s consumers after the economy last year reported one of its slowest paces of growth in nearly 50 years. Dan Wang, chief economist at Hang Seng Bank China, said that monetary policy and fiscal policy have so far remained tight along with lower income growth and added that the “domestic demand is depressed,” according to Gulf Today report.
China’s biggest banks on Thursday announced that they have reduced interest rates on deposits to give some relief to the financial sector and economy by reducing pressure on profit margins and decreasing lending costs. Analysts have been reducing their forecasts for economic growth for the year amid continued signals of slowing. The Chinese government has now set a GDP growth target of around 5 per cent for this year after failing to achieve the target in 2022.
Meanwhile, China’s economic growth is expected to be “relatively high” in the second quarter in comparison to the previous year, according to the central bank governor. The consumer inflation in China is projected to be more than 1 per cent by December, Gulf Today cited the central bank governor.
China’s core CPI has been soft and factory gate prices witnessed a sharp decline in May, indicating that its economy is losing steam. Presently, China’s economy is recovering from the effect of COVID-19 and the balance sheets of Chinese companies are being repaired, the People’s Bank of China (PBOC) announced in a statement citing Governor Yi Gang during his visit to Shanghai, Gulf Today reported.
China’s economy is facing challenges like worsening exports, youth jobless rate, property distress and weak domestic demand. However, Yi said that China is confident and capable of meeting the growth target that have been set earlier this year. The Chinese government has set a modest GDP growth target of around 5 per cent for this year after missing the 2022 target.