China’s Inflation Flashes Warnings for Smokestack Industries
Industrial and energy stocks doing well, but latest data points to prolonged malaise in rust belt
A vegetable vendor counts his money Thursday at a market in Beijing.
Today’s inflation data may give some hope to optimists.
Consumer inflation in February rose to 2.3%, the highest rate since June 2014. But the Chinese consumer-price index basket is mostly weighted to food.
Industrial and energy stocks doing well, but latest data points to prolonged malaise in rust belt
A vegetable vendor counts his money Thursday at a market in Beijing.
ILLUSTRATION: REUTERS
By
GREGOR STUART HUNTERUpdated March 10, 2016 1:09 a.m. ET
Chinese industrial stocks have rallied this month as investors see faint signs of life returning to the country’s rust-belt heartland.
But for all the buzz about supply-side reform emanating from Beijing and gains for commodities, China’s inflation is still flashing warning signals about the strength of the broader economy.
Hong Kong-listed commodities stocks have outperformed this month, while industrial and energy sector names—last year’s worst performing sectors— have bounced back.
By
GREGOR STUART HUNTERUpdated March 10, 2016 1:09 a.m. ET
Chinese industrial stocks have rallied this month as investors see faint signs of life returning to the country’s rust-belt heartland.
But for all the buzz about supply-side reform emanating from Beijing and gains for commodities, China’s inflation is still flashing warning signals about the strength of the broader economy.
Hong Kong-listed commodities stocks have outperformed this month, while industrial and energy sector names—last year’s worst performing sectors— have bounced back.
Today’s inflation data may give some hope to optimists.
Consumer inflation in February rose to 2.3%, the highest rate since June 2014. But the Chinese consumer-price index basket is mostly weighted to food.
Commonwealth Securities says food prices rose 7.3% year-on-year in February; non-food items rose just 1%. It’s also affected by the timing of Chinese New Year—when Chinese families gather for enormous family meals—which was in February this year.
A better gauge may be China’s producer price index. This measure of prices at a wholesale level fell year-on-year for the 48th consecutive month, down 4.9%, worse than market estimates of a 4.8% decline.
A better gauge may be China’s producer price index. This measure of prices at a wholesale level fell year-on-year for the 48th consecutive month, down 4.9%, worse than market estimates of a 4.8% decline.
The latest data marks four straight years of deflation in Chinese industry—a symptom of the country’s chronic overcapacity.
The low level of inflation comes despite rising commodity prices.
The low level of inflation comes despite rising commodity prices.
They’ve made gains as speculation mounts of an output cut from Organization of the Petroleum Exporting Countries (OPEC) producers later this month, which could boost the price of other commodities in the energy-intensive sector.
That said, the reading was the slowest pace of deflation since June. Economists say there are encouraging signs in the data, but they have to wait to see whether the trend can become entrenched.
“The government pumped in more money than it’s letting on in recent months to revive construction activity in China,” said Frederic Neumann, managing director and co-head of economic research at HSBC. “We’re seeing a gradual pickup in construction activity, which is easing some of the deflationary pressures. The question is, can this be sustained?” The pick up in PPI may be a ‘dead cat bounce,’” he adds.
Meanwhile, Purchasing Manager’s Index data, another gauge of demand from Chinese companies, fell during February. Both official gauges and a private sector survey by Markit declined, with the official measure hitting the lowest level since December 2011.
The discrepancy could be explained by a collapse in global trade, which has been reflected in China’s exports in recent months, Mr. Neumann said.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com
That said, the reading was the slowest pace of deflation since June. Economists say there are encouraging signs in the data, but they have to wait to see whether the trend can become entrenched.
“The government pumped in more money than it’s letting on in recent months to revive construction activity in China,” said Frederic Neumann, managing director and co-head of economic research at HSBC. “We’re seeing a gradual pickup in construction activity, which is easing some of the deflationary pressures. The question is, can this be sustained?” The pick up in PPI may be a ‘dead cat bounce,’” he adds.
Meanwhile, Purchasing Manager’s Index data, another gauge of demand from Chinese companies, fell during February. Both official gauges and a private sector survey by Markit declined, with the official measure hitting the lowest level since December 2011.
The discrepancy could be explained by a collapse in global trade, which has been reflected in China’s exports in recent months, Mr. Neumann said.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com
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