In China, inflation decreases, and profits for some sectors will be lower


If we compare the data from 15 months ago with the current data, we will see how China’s production price inflation has slowed. This slowdown is probably due to the fact that the cost of raw materials has increased at a more moderate pace, indicating a potential softening of profits in the industrial sector.

The data in question, however, are not yet analized by experts with certainty. The Lunar New Year celebrations, recently celebrated, in fact, tend to distort the market and prices. To get a clearer picture of China’s economic health, investors will have to wait until April when the first quarter data will be published.

Currently, according to the National Bureau of Statistics, the producer price index rose 3.7 per cent in February from a year earlier, compared with 4.3 per cent in January.

Regarding miners, steel makers and manufacturers, profits are expected to moderate, as suggested by the fact that China’s factory-gate inflation has now softened for four months in a row. And this could be a problem for China.

Country’s “smokestack” industries, in fact, would have less cash flow to service and pay down their debts and, since these industries are dominated by state-owned giants, this also a problem of Chinese politics.

To make the situation clearer is the core consumer price index, rose 2.5 per cent in February, faster than 1.9 per cent in January.

Sheng Guoqing, a statistics bureau official said: “The year-on-year increase in CPI is expected to ease in March as holiday effects recede”.

China announced a 2018 consumer inflation target of “around three per cent”, in line with last year, but most analysts do not expect retail inflation to reach that level. Producer inflation is expected to continue to moderate in coming months.

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