China's consumer and producer prices point in different directions
Consumer inflation slowed in July while producer prices rose from a year earlier. Two official releases show the divergence between the household basket and factory-gate prices.
Economics & Markets··Morning
A slower rise for consumers
Consumer prices in July rose 0.5 per cent from a year earlier and fell 0.1 per cent from June, according to the National Bureau of Statistics of China. The core measure excluding food and energy increased 0.9 per cent over the year. Those two rates show that the slowdown in the headline index was not distributed evenly across the consumer basket. The detail makes that distribution clearer: food prices fell 1.5 per cent from a year earlier, while non-food prices rose 0.9 per cent and services increased 0.7 per cent. The decline in food therefore pulled down the headline rate while the core measure retained a stronger annual increase. Consumer prices averaged 0.9 per cent growth over the first seven months of the year. The monthly decline and annual increase can also coexist because they use different comparison points: July was slightly below June but remained above July of the previous year. The release describes a consumer basket whose components moved at different speeds and, in the case of food, in a different direction from non-food goods and services.[1]
An annual increase at the factory gate
Producer prices offered a different view of the same month. The National Bureau of Statistics of China said factory-gate prices rose 3.5 per cent from a year earlier in July but fell 0.7 per cent from June. Prices paid by industrial producers for inputs increased 5.5 per cent over the year. Prices for means of production rose 4.8 per cent, while consumer-goods prices declined 0.8 per cent. A 16.4 per cent annual increase in mining prices showed that the producer index also contained a wide range of movements. Oil and gas extraction prices, meanwhile, fell 9.2 per cent from June. As with the consumer release, the annual and monthly comparisons point in different directions: factory-gate prices stood above their level of a year earlier and below the previous month's level. The annual increase in input purchase prices was also larger than the overall rise at the factory gate. The release therefore depicts uneven movement across the production chain, with distinct outcomes for mining, oil and gas extraction, means of production and consumer goods.[2]
Two price layers in the same month
Read together, the two official releases show consumer and producer prices diverging across different layers in July. Annual consumer inflation slowed to 0.5 per cent while factory-gate prices rose 3.5 per cent; both indices declined from June. On the consumer side, the annual fall in food prices sat alongside increases in non-food prices and services. On the producer side, inputs and means of production became more expensive over the year while consumer goods became cheaper. This comparison does not establish that the annual rise at the factory gate passed into the consumer basket at the same scale during the same month. The releases measure different groups of goods and services and use separate comparison points. The clearest reading therefore comes from the distribution within each layer rather than from one headline rate: food moved lower in the consumer basket; the core measure and services rose; inputs, means of production and mining increased on the producer side; and consumer goods and monthly oil and gas extraction prices fell. July's price picture contained annual increases and monthly declines at the same time.[1], [2]
