Garment Prices Drop in July CPI and PPI

CNTEX Exclusive:

China's consumer price index (CPI), a main gauge of inflation, dipped 1.8 percent in July from a year earlier to 98.2, the National Bureau of Statistics (NBS) announced on Aug. 11. Of which, the price of garment was down by 2.4 percent year-on-year to 97.6. The July decline compared with a 0.1-percent drop in June and 1 percent drop in last July.

The country's producer price index (PPI), a major measure of inflation at the wholesale level, fell 8.2 percent year on year in July to 91.8, according to the NBS. Of which, the price of garment was down by 0.6 percent year-on-year to 99.4. The July decline compared with a 0.4-percent drop in June and 3 percent drop in last July.

 

Garment Consumer Price Index in China fell to 97.3 year on year in Jan. and then hold flat from Feb. to Jun. on 97.7 and fell slightly again to 97.6 in Jul.

 

July's decline in consume prices was mainly due to dismal market hit by the crisis. Besides, many companies try to attract more customers by lower prices. Thirdly, more and more Chinese garment enterprises have felt the chill and decided to turn their eyes away from European and American markets and focus back on the domestic market. Last but not least, former price decline encourages people to defer spending, as they wait for prices to fall further.

Garment Producer Price Index Drops Further

China's Garment Producer Price Index fell 8.2 percent year on year in July. Garment PPI was 100.9, in Jan, 99.9 in Mar.- Apr., and 99.8 in May -Jun.

 

Experts attributed the PPI fall to three factors. First, prices maintained fast growth in the first eight months of 2008. For instance, the month-on-month PPI growth stood at 0.8 percent in May last year, compared with just 0.1 percent last month. That contributed to a larger fall in the year-on-year figure. Second, material and energy prices are stable. Third, domestic demand has grown at a lower pace.

 

The garment CPI trends negative on release of the data of first half of 2009. Experts forecast CPI will continue to trend lower for at least another several months before stabilizing, but decline slower.

 

There is still downward pressure for the indices as the economy is still on track to recovery and prices increased fast in July last year, causing a high base effect. The government set an annual target of 4 percent for the CPI increase in 2009 at the beginning of this year. To stimulate economic growth, lenders pumped 7.73 trillion yuan of new loans into the economy in the first seven months.  The surge in credit would help boost demand and in anticipation of the new introduction, manufacturer ran inventories down to a low level, which would push up prices.  

 

Alleviating market concerns about the possibility of policy tightening, Chinese officials have emphasized they will maintain an active fiscal policy and moderately loose monetary policy while fine-tuning measures to guard against asset bubbles. With the global recovery unlikely to be smooth, some experts said domestic demand is likely to remain the primary engine of growth for the remainder of 2009.

 

China's producer prices are likely to return to positive year-on-year growth in the fourth quarter, prompting Beijing to consider an exit plan for its loose monetary policy, Ba Shusong, a deputy director in the Development Research Centre, a think-tank under the State Council said in remarks. Ba said by that time, Chinese exports would be reviving as the United States, the country's main market, recovered from recession, Ba was quoted by the official China Securities Journal as saying. He said he was concerned about the potential for rising financial risks and external payments imbalances as well as looming inflation pressures.

 

Lian Ping, chief economist of Bank of Communications said, overall, the trend of economic recovery is still clear. Although the pick-up in industrial output is below expectations, it still went up from June. It is normal to see some swings in certain months, as we saw earlier this year.

 

The decline pace of Garment Producer Price Index may slow down in the near future, and may hit bottom in Oct. as purchasing prices of raw materials, fuel and energy are edging up. The price is experiencing adjustments and a trend is difficult to discern.