Tuesday, July 14, 2020
Martin Hennecke

China factory inflation slows as food prices surge
<p>China&#39;s factory inflation slowed in May as faltering manufacturing hit demand, reinforcing worries about cooling growth in the world&#39;s second-largest economy, while a surge in food prices could add to consumer grievances about living costs.</p><p>China&#39;s producer price index gained merely 0.6 percent in May, in line with analyst expectations and lower than a 0.9 percent uptick in April.</p><p>The slowdown was driven by declines in industrial commodity prices and was in line with the downbeat factory activity seen in May. It also comes amid China&#39;s worsening trade dispute with Washington, which analysts fear could trigger a global recession.</p><p>In contrast to the softer upstream prices, China&#39;s consumer price index in May rose 2.7 percent from a year earlier, in line with expectations but the fastest rise since February 2018.</p><p>The consumer inflation was driven by soaring food prices, which rose at their fastest pace in seven years, as bad weather hit fruit production and African swine fever wiped out pork supply.</p><p>Chinese banks extended 1.18 trillion yuan (HK$1.33 trillion) in net new yuan loans in May, up from 1.02 trillion yuan in April, data released by the People&#39;s Bank of China showed yesterday, but the amount fell short of market expectations.</p><p>China&#39;s central bank was to inject 35 billion yuan through open market operations yesterday, traders said.</p><p>On a net basis, the central bank will drain 25 billion yuan from the market for the day, as 60 billion yuan worth of reverse repos was set to expire yesterday.</p><p>China&#39;s central bank is making it clear to yuan bears that short-term declines are no sure thing, especially in the run-up to a crucial meeting at the end of this month.</p><p>Meanwhile, the PBoC set its daily reference rate for the currency at higher than market watchers expected for a 10th straight day yesterday, the longest run since September.</p><p>The onshore yuan fell slightly by 29 basis points to 6.91 against the US dollar.</p>

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