China’s Slowing Wholesale Deflation Takes Pressure off Central Bank

China’s factory price deflation moderated further in July, with prices falling at their slowest pace in two years, taking pressure off the central bank to cut rates as policymakers turn their focus to structural reforms and ballooning credit.

A government-led building spree has increased demand for construction materials, but higher prices are also due in part to speculation in China’s commodities futures market, which has pushed up Shanghai rebar futures up by 50 percent this year.

The producer price index (PPI) fell 1.7 percent in July from a year ago, the National Bureau of Statistics said on Tuesday, smaller than June’s 2.6 percent decline. Analysts expect producer price inflation to turn positive this year for the first time in more than four years, but the recovery at the factory gate is unlikely to lead to a rebound in private investment, which has fallen to record low growth rates.

Reuters

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