JAKARTA (TheInsiderStories) – The National Bureau of Statistics reported China’ producer price index (PPI) slumped to 0.9 percent in annual basis (YoY) in December, the lowest since September 2016. The headline decline was mainly due to a high base effect from the previous year and declining commodity prices.

In particular, the chemicals, non-metallic mineral products, ferrous metals, petroleum and natural gas extraction, and petroleum and coking processing sectors together accounted for 1.71 percentage points of the fall in December compared with November.

Yanjun Lin, senior economist at IHS Markit rated, the PPI is expected to continue its downward trend. Weak investment and exports will put downward pressure on the PPI. Furthermore, low oil prices will also drag on the index.

The consumer price index (CPI) eased to 1.9 percent year on year (YoY) in December 2018, 0.3 percentage point lower than the previous month.

The decline in headline inflation was mainly driven by weaker non-food prices. Non-food prices contributed 1.38 percentage points to the CPI inflation in December, compared with 1.68 percentage points in November.

Owing to falling oil prices, the growth rates of vehicle fuel prices and residential water, electricity, and fuel prices were down 13.1 percentage points and 0.3 percentage point, respectively, in December compared with November.

Food prices contributed 0.48 percentage point to the CPI inflation in December. Pork prices, which are weighted heavily in the CPI basket, declined at a faster pace than the previous month.

China‘ CPI is likely to remain relatively stable in the coming months. The outbreak of African swine fever will negatively affect pork supply and drive up pork prices. However, increased agricultural imports from the US as a result of the trade truce will help reduce food-price inflation.

Further, the declining upstream PPI will decrease the input costs of downstream producers and therefore lower the prices of downstream manufactured products captured by the CPI.

Written by Staff Editor, Email: theinsiderstories@gmail.com