Prices of goods produced by Chinese factories fell at their fastest annual rate in four years in May as the coronavirus pandemic undermines global demand for the country’s exports.
Producer prices fell by 3.7 per cent in May compared with the same month last year, according to official statistics. The data, which were worse than economists had forecast, mean that China’s factory gate deflation has accelerated every month since February.
Exports to the US fell 11 per cent in the first five months of the year, according to recently released trade data, despite a rebound in domestic business activity as China recovers from the outbreak.
Iris Pang, chief China economist at ING, said the weak Chinese data were part of a “global demand phenomenon”.
“With a higher unemployment rate and lower wages, I think this will continue for at least one or two years,” she added, pointing to China’s producer price index moving “deeper and deeper into negative territory”.
The container shipping industry also reflects trade pressures with about 40 sailings between east Asia and the west coast of the US cancelled in May, according to data from Alphaliner, which it said “somewhat unexpectedly caused a sudden capacity shortage”.
Weakness in the price of oil, a crucial input cost for producers, was also a factor in the fall in factory prices, according to Ting Lu, chief economist for Greater China at Nomura.
Prices for consumer goods in China rose year-on-year in May compared with last year but were also lower than market expectations. The consumer prices index rose 2.4 per cent year-on-year, slowing from 3.3 per cent growth in April.
Food prices rose 10.6 per cent, with pork prices — China’s most popular meat — up 81.7 per cent. An outbreak of African swine fever has forced farmers to cull pigs, driving pork prices higher.
This week’s data come amid signs of a domestic recovery in China. The country’s statistics bureau said supply and demand had further improved in May after the coronavirus outbreak in the country had stabilised and businesses had resumed work.
“The weakness in price pressures should ease in the coming months, as the ongoing ramp up in policy stimulus drives a further recovery in activity,” said Martin Rasmussen, China economist at Capital Economics.
