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China CPI stabilizes, yet PPI resumes fall

China CPI stabilizes yet PPI resumes fall

Inflation rates from the consumer point of view continued to stabilize near high levels in China during the month of December, while the producer prices resumed fall, which keeps the door open to further monetary easing by the Chinese central bank to counter the slowdown in economic growth.

Consumer prices stabilize

The annual consumer price index for December increased by 4.5%, unchanged from the previous reading, while expectations were for a 4.7% increase.

Consumer inflation remains high at its highest level in 8 years, in light of the rise in food prices and the increase in oil and energy prices during the recent period on the back of the geopolitical tensions.

The persistence of high inflation rates for consumers may make the Chinese central bank more cautious in dealing with monetary easing and stimulus, while expectations indicate that the second half of the year may witness a decline in inflation as food prices descend.

Producer prices resume decline

December's PPI fell 0.5%, compared to the previous reading of -1.4%. Expectations referred to a 0.4% drop.

The pace of the fall in the PPI has slipped in line with the improvement in price components in recent manufacturers' polls. However, some believe that the rise in energy prices was one of the main reasons that caused a slowdown in the pace of decline in December.

In general, the producer prices, which is a major indicator of corporate profitability in China, remain in uncomfortable zones, which increases the pressure on the Chinese government to continue support for the deteriorating industrial sector in China.

China intends to set the goal of economic growth at about 6% during the year 2020, in light of the government’s pursuit to boost infrastructure spending to more sluggishness in economic growth.

It is worth mentioning that China’s growth slowed from 6.8% in 2017 to 6% in the third quarter of 2019, marking the slowest pace since the early 1990s.

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