China supports price gains with capacity cuts, but how long will it last?
Factory inflation holding up and may continue if government pushes more cuts
China’s factory inflation has risen at a pace of 5.5% for the past three months, and economists expect producer price index to increase 4.8% from a year earlier this quarter, reports Bloomberg.
Prices have been supported by the government’s drive to cut excess industrial capacity, which have come amid a commodity rally fueled by Chinese construction.
While some see the commodity rally losing steam, it may depend on whether further cuts are coming.
“China’s upstream disinflation is to some extent in its own hands,” Andrew Polk, co-founder of research firm Trivium China in Beijing was quoted by Bloomberg as saying. “If authorities can push forward more capacity cuts, maybe prices won’t ease as much as the market current expects.”