China Factory Gate Deflation Deepens as CCP Virus Paralyzes Global Economy

April 10, 2020 Updated: April 10, 2020

BEIJING—China’s factory gate prices fell the most in five months in March, with deflation deepening and set to worsen in the coming months as the economic damage wrought by the CCP virus outbreak at home and worldwide shuts down many countries.

The world’s second-largest economy is trying to restart its engines after weeks of near paralysis to contain the pandemic that had severely restricted business activity, flow of goods and the daily life of people.

Data on April 10 from the National Bureau of Statistics suggested a durable recovery was some way off, with China’s producer price index (PPI) falling 1.5 percent from a year earlier, the biggest decline since October last year. It compared with a median forecast of a 1.1 percent fall tipped by a Reuters poll of analysts and a 0.4 percent drop in February.

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An employee working on an air conditioner production line at a Midea factory in Wuhan in China’s central Hubei province, on March 25, 2020. (STR / AFP via Getty Images)

Headline consumer inflation also eased somewhat last month, partly led by government control measures, while core prices remained benign, leaving more room for monetary easing, some analysts said.

The overall decline in the factory gate gauge was exacerbated by a slump in global oil and commodities prices, which filtered through to crude oil, steel and non-ferrous metal industries, the statistics bureau said in a statement accompanying the data.

“The issue of having more supply than demand, and persistently low oil prices, will intensify deflationary pressures,” said Yang Yewei, a Beijing-based analyst with Southwest Securities.

“Work resumptions on the production side are faster than the repair in demand. Downstream demand is recovering slowly and still remains weak,” he said.

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Employees working on a battery production line at a factory in Huaibei in China’s eastern Anhui province, on March 30, 2020. (STR /AFP via Getty Images)

The oil and gas extraction sector had the biggest year-on-year price fall of 21.7 percent, among the 40 major industrial sectors surveyed, deteriorating sharply from a 0.4 percent drop in the previous month.

The stringent travel and transport curbs have now been lifted across much of the country including Wuhan, the epicenter of the outbreak where the CCP (Chinese Communist Party) virus first emerged in late 2019.

Analysts expect a deep first-quarter economic contraction in China and have grown increasingly pessimistic about the country’s prospects for 2020 due to the pandemic’s sweeping global impact.

Many economists and policymakers are forecasting a steep global recession this year as numerous countries are forced into lockdowns to contain the spread of the CCP virus, severely curtailing business activity in a major blow to jobs and incomes.

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Workers eating at lunch break after making hazardous material suits to be used in the COVID-19 coronavirus outbreak, at the Zhejiang Ugly Duck Industry garment factory in Wenzhou, China, on Feb. 28, 2020. (Noel Celis/AFP via Getty Images)

Policymakers globally have responded to the crisis by launching an unprecedented package of stimulus measures, injecting trillions of dollars to backstop their economies that have been brought to a virtual standstill.

Beijing has also rolled out a series of fiscal and monetary support steps, and sources have told Reuters that policymakers are readying more stimulus in the coming months to stabilize growth and prevent mass unemployment.

China’s consumer prices rose 4.3 percent from a year earlier in March, compared with a 4.8 percent gain tipped by a Reuters poll and a 5.2 percent increase in February, as logistics and transport conditions improved and government price control measures kicked in.

But food prices still rose over 18 percent from a year earlier, led by a 116.4 percent jump in pork prices, the data showed. The CCP virus outbreak has pushed up prices of some food items, such as pork and vegetables.

Core inflation—which excludes food and energy prices—remained benign last month at 1.2 percent, but it still edged up from 1 percent in February.

By Se Young Lee and Yawen Chen

Epoch Time staff contributed to this report.