China's PPI Drops 44th Month, Chinese Trade Slumps on Waning Demand, Deflationary Pressures

China's PPI Drops 44th Month

China's CPI is up a modest 1.3 percent year over year but Producer Prices Fall for 44th Month.

China's consumer inflation moderated again in October, while producer prices declined for the 44th straight month, as falling commodity prices and weak demand add to deflationary pressure.

The producer price index (PPI) fell 5.9 percent in October from a year earlier, identical with the decline in September, and slightly more than economists' forecasts of a 5.8 percent drop.

China's CPI Slows Amid Deflationary Pressures

The Wall Street Journal reports China’s Inflation Slows in October.

China’s consumer inflation dipped further last month due to lower food prices, adding to what economists say are signs of slack demand and slowing in the world’s second-largest economy.

China’s consumer-price index rose 1.3% in October last month from a year earlier, according to the government’s statistics bureau. The pace was slower than the 1.6% year-over-year rise in September and a tick down from the median 1.4% gain forecast by 11 economists in a survey by The Wall Street Journal. Prices of goods at the factory gate fell 5.9% in October from a year earlier, matching September’s decline.

“It’s quite clear, China is facing deflationary pressure,” said Mizuho Securities Asia Ltd. economist Shen Jianguang. “The issue is how to revive growth that’s been below target, while restructuring the economy to reduce overcapacity.”

Trade Slumps on Waning Demand

Chinese imports and exports hit the skids as Trade Slumps on Waning Demand

China’s trade with the rest of the world fell sharply in October from a year earlier, with imports of raw materials particularly hard hit as slowing Chinese investment feeds through into weaker demand in the world’s biggest trader of goods.

Chinese imports fell 18.8 per cent in October from the same month a year earlier, a slight improvement from the 20.4 per cent year-on-year fall in September. Sharply lower prices of oil and other commodities also helped scythe the bill.

Exports declined 6.9 per cent in October from a year earlier, deteriorating from the 3.7 per cent fall the previous month as weak global demand and higher Chinese costs led to slumping shipments of the cheap Chinese goods that have flowed to the world in the last decade.

At the start of the year, the ruling Communist party set a target of 6 per cent growth in trade for this year but total trade has now fallen by just over 8 per cent in the first ten months of 2015 compared with the same period a year earlier.

In the first 10 months of the year, Chinese exports to the US were up 5.2 per cent from the same period in 2014, while exports to countries in Asean were up 3.7 per cent, according to Chinese customs figures.

Exports to the EU, Japan and Hong Kong — which serves as a transit point for exports to many other parts of the world — fell by 4.1 per cent, 9.5 per cent and 12.2 per cent respectively.

No Decoupling

I have stated this several times before but it's worth noting again: The widely believed notion that China would decouple from the global markets in 2007 and 2008 was as silly then as the notion the US can do the same today.

Mike "Mish" Shedlock