China inflation stays low as growth sputters
by AFP Staff Writers
Beijing (AFP) June 9, 2023

Chinese inflation came in flat again in May, official figures showed Friday, as the country's economy sputters owing to softening demand and falling exports, leading to calls for a rate cut and a bigger government stimulus.

The consumer price index (CPI) rose 0.2 percent on-year, from 0.1 percent in April, the National Bureau of Statistics (NBS), said.

The figure was in line with expectations of analysts polled by Bloomberg.

Beijing has kept interest rates low compared to other major economies, but the near-zero inflation highlights challenges faced by policymakers as they try to stimulate the economy.

Top economist and government adviser Liu Yuanchun on Thursday called for regulators to cut borrowing costs further to ease the financing burden of small and medium-sized private businesses.

Private companies' borrowing costs exceeded that of large state-owned enterprises, Liu said, according to Bloomberg News.

Large state-owned enterprises enjoyed loan rates lower than 1.8 percent but many private firms had to pay nearly nine percent, he said on the sidelines of the Lujiazui Forum in Shanghai.

"It'll be better if the rate cut comes as a part of a package of support policies," he said.

China's six largest state-owned commercial banks cut interest rates for savers on Thursday to boost spending, according to announcements on their websites, after being asked by the central bank.

The country's producer price index (PPI) -- which measures prices paid by wholesalers -- dropped a bigger-than-expected 4.6 percent in May, from a 3.6 percent decline in April, and the biggest drop since 2016.

PPI has fallen for eight consecutive months because of sluggish domestic demand and lower commodity costs.

Other economic data released recently also signal weakness in the world's second-largest economy, despite the lifting of strict pandemic rules at the end of last year.

Exports sank in May for the first time since February, state media reported earlier in the week, breaking a two-month growth streak as a post-Covid rebound faded.

The Chinese economy is weighed down by a debt-laden property sector and a global economic slowdown.

"The risk of deflation is still weighing on the economy," Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, said.

"The government has not sent a clear signal on potential policy stimulus," he said, adding that the next round of policy reviews may come after July.

Analysts from Capital Economics said: "We still think a tightening labour market will eventually put some upward pressure on inflation later this year."

Most markets rise on revived hopes for a Fed rate pause
Hong Kong (AFP) June 9, 2023 - Stocks rallied again on Friday, fired by renewed optimism that the Federal Reserve will hold off lifting interest rates next week as fresh data indicated further tightening in the US labour market.

Expectations the central bank will stand pat next week -- for the first time since starting its hiking cycle last year -- have pushed equities higher for most of the month, helped by the end of the US debt ceiling standoff.

Confidence was dealt a blow this week by the Bank of Canada's surprise lift and a similar move in Australia, causing concern on trading floors that the Fed will act after all.

But news of a forecast-busting jump in jobless claims for last week -- to the highest since October 2021 -- cemented the belief officials will pause until next month.

"The Fed is the price-setter here, the others are the price-takers, and we should not confuse the two," Evercore ISI's Krishna Guha said.

The Bank of Canada and the Reserve Bank of Australia "are raising rates in part because they think the Fed will hike once more and if they fail to match this they risk forex depreciation".

Thursday's figures came after last week's key non-farm payrolls data for May, which was taken as being healthy enough to suggest the economy was in good shape but weak enough to give the Fed room to hold fire for now.

All three main US indexes ended higher, with the S&P 500 entering a bull market after rising more than 20 percent from its October low.

Analysts said a pick-up in industrial stocks indicated a broadening of the rally while others said the United States could even avoid a recession, which many had feared would happen because of the surge in interest rates over the past year.

- China stimulus talk -

In Asian trade, Hong Kong, Shanghai, Tokyo, Seoul, Sydney, Taipei, Mumbai and Jakarta were all in positive territory.

Singapore, Manila, Bangkok and Wellington dipped.

London, Paris and Frankfurt opened with strong gains.

Traders are now awaiting the release of the key US consumer price index next week, which comes ahead of the Fed policy decision, but with bets on a pause growing, observers said the July meeting was already in focus.

"Early days, but the June non-farm payrolls report is building to be a particularly interesting one -- on the wages front in particular -- given that money markets continue to price some 21 basis points of Fed tightening over the combined June and July (policy) meetings," said National Australia Bank's Ray Attrill.

Meanwhile, eyes are on China, where there is growing speculation that authorities will unveil fresh stimulus measures to kickstart the world's number two economy, with the post-zero-Covid rally already fading.

Disappointing readings on manufacturing activity and trade this week have compounded the view that officials need to step in, with reports suggesting the People's Bank of China will cut interest rates soon.

Expectations were ramped up Thursday after a key government adviser said borrowing costs should come down to help struggling firms' financing ability.

The need for action was reinforced Friday by data showing consumer inflation essentially flat in May and wholesale prices falling more than expected.

"On the whole, the muted inflation environment may call into question the sustainability of the economic recovery, but it also provides a favourable backdrop for policymakers to roll out more policy support," said HSBC's Erin Xin.

On currency markets, the Turkish lira sat around record lows against the dollar, even as newly re-elected President Recep Tayyip Erdogan appointed former Wall Street executive Hafize Gaye Erkan as central bank governor, signalling a possible shift in his unconventional policies to fight inflation.

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