China September inflation cooler than expected, producer prices extend slump

Tue Oct 13, 2015 11:09pm EDT
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BEIJING (Reuters) - Consumer inflation in China cooled more than expected in September while producer prices extended their slide to a 43rd straight month, adding to concerns about deflationary pressures in the world's second-largest economy.

The consumer price index (CPI) rose 1.6 percent in September from a year earlier, the National Bureau of Statistics (NBS) said on Wednesday, lower than expectations of 1.8 percent and down from August's 2.0 percent.

In a sign of sluggish demand, the non-food CPI was even milder with an annual growth rate of 1.0 percent in September, the NBS data showed.

The easing CPI was mainly due to a high comparison base last year, Yu Qiumei, a senior NBS statistician, said in a statement accompanying the data. CPI rose 0.5 percent month-on-month in September 2014, compared to a 0.1 percent growth last month.

Reflecting growing strains on Chinese companies from persistently weak demand and overcapacity, manufacturers continued to cut selling prices to win business.

The producer price index(PPI) fell 5.9 percent from a year ago, in line with the expectations and the same rate of decline as in August, which was the biggest drop since the depths of the global financial crisis in 2009.

"Overall, the still weak PPI highlights the severe overcapacity problem and sluggish domestic investment demand," said economists at Nomura.

"Given the lackluster growth outlook, we continue to expect moderate fiscal stimulus from the central government and continued monetary easing."

Nomura expects one more cut to banks' reserve requirement ratio (RRR) late this year and another four in 2016, each by 50 basis points (bps), together with two more interest rate cuts of 25 bps each next year.   Continued...

A woman chooses vegetables at a supermarket in Beijing, China, July 9, 2015. REUTERS/Kim Kyung-Hoon