China’s Factory Prices Slumped Due to Weak Coronavirus-hit Demands  

China reported that the country had witnessed a sharp fall of its factory prices in April, which was a record low in four years that highlighted a growing slump of domestic industrial demand due to the coronavirus outbreak.

While China started opening up business productions, as part of restructuring its failing economy, many countries were still continuing the nationwide lockdowns and their factories remained close considering that the global economy has rolled into a deep recession.

Deflation of China’s Factory Prices

The National Bureau of Statistics, China said in a statement on Tuesday, May 12, 2020, that the producer price index (PPI) of the country fell 3.1% from a year earlier, against the figures of a 2.6% drop projected by a Reuters’ poll of analysts and a 1.5% decline in March. Meanwhile, government data released last week showed that China’s exports unexpectedly grew in April from a year earlier, although a sharp decline in imports due to weak domestic demand.

Wen Bin, a Senior Economist at Minsheng Bank in Beijing, reflected, “The pace at which producer prices are falling is faster than the market expected, which calls for more forceful measures to spur demand.” Moreover, another senior expert, Julian Evans-Pritchard said, “Demand-side pressures (of China) are likely to persist for some time with tumbling energy and food prices bringing headline gauges lower.”

Evans-Pritchard continued, “That should remove any concerns the People’s Bank of China has about the impact of monetary easing on inflation,” adding that, “If anything, lower inflation will increase real interest rates and strengthen the case for further rate cuts.”

Sharp Contraction in Oil and Commodities Industry

China’s statistics bureau explained that the heavy decline in the producer price was mainly caused by the rapid slump in global crude oil and commodity prices. Sources reported that oil and gas extraction was seen as the largest year-on-year price fall of 51.4%, steepening from a 21.7% drop in the previous month among the 40 major industrial sectors surveyed. Combining fuel extraction and processing, and chemical manufacturing composed nearly 60% of the country’s deflation.

Against the estimation of a 3.7% surge by Reuters’ poll of analysts, China’s consumer price index (CPI) rose 3.3% from a year earlier. The slow rate of CPI was largely due to slowing food price growth, which rose over 18% in March and a figure still rose 14.8% last month, led by a 96.9% jump in pork prices.

Meanwhile, governments across the globe remained wary about the risks of the second wave of infections, despite some countries have witnessed slowing of the pandemic outbreak and gradually lifted restrictions and resumed their economies.

Anticipating the upcoming virus wave, the Chinese central bank had raced up economic support by extending 1.7 trillion yuan ($240.05 billion) in new yuan loans to the country’s banks in April, significantly more than a year earlier, with an aim to boost money supply into economy.

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