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     BEIJING (MNI) - China's factory-gate prices grew at the slowest pace in
more than two years, suggesting slower demand discouraging industrial
production. That has raised calls for policymakers to take easing measures and
prevent the economy from entering deflation. Consumer prices held steady partly
on weak spending.  
     Producers price index (PPI) gained 0.9% in December over a year ago,
according to data released by the National Bureau of Statistics on Thursday.
That would be the lowest level since September 2016, below 1.6% projected in an
MNI survey of economists, and contrasted sharply with November's 2.7% rise y/y.
     "PPI is likely to continue to decline," Deng Haiqing, the chief economist
of Wallstreet CN wrote in a report. If it turns into deflation, the central bank
may consider interest rate cuts, a significant easing of monetary policy, and
increase countercyclical adjustment, he said.
     PPI y/y growth may turn negative by the first quarter, Bocom International
said in a report. 
     On a monthly basis, PPI decelerated by 1% after contracting 0.2% in
November. The biggest drag on prices is driven by smaller gain in production
material prices, which fell 1.3% from November, contributing to 0.96 percentage
point to the overall PPI m/m.
     The cost of fuel and power, chemical raw material, ferrous metal,
non-ferrous metal and wire declined from November by 2.4%, 1.9%, 1.3%, and 0.5%,
respectively. The exceptions are the procurement price of construction material
and non-metal, which rose 1.2% m/m. 
     --NEGATIVE PROFITS
     The petrochemical industry suffered the most from weak commodity prices.
Oil and gas exploration, processing of coal and other fuel, chemical products
manufacturing fell 12.9%, 7.6%, and 1.9% from November, respectively. Fuel
prices, controlled by the government, were set lower following declining world
crude prices. 
     The broadly falling prices of industrial products may indicate slowing
growth in companies' profits or even negative growth, Bocom said in a report. 
     Consumer price index (CPI) rose 1.9% y/y in December, down from 2.2% in the
previous month, missing the projection of 2.1% by the MNI survey. It was also
the smallest gain since June 2018.
     CPI m/m was flat in December, compared with 0.3% m/m decrease in November.
     Food prices rose 1.1% m/m compared with -1.2% m/m in November from October.
The prices of vegetables and fruit increased by 3.7% and 1.9%, respectively as
cold weather disrupted supply.
     --SOFT DEMAND
     Prices of non-food items fell 0.2% m/m, extending -0.1% in November, as
costs of vehicle fuels dropped following a slump in global crude prices, but
also indicate a broadly softening consumer demand. 
     The price of gasoline and diesel oil fell by 10.1% and 10.8%, respectively,
dragging down the CPI by 0.22 percentage point.
     Inflation in 2018 rose 2.1%, well below the government's 3% ceiling, and
leaving the central bank with plenty of room to continue pursuing loosening
policies.
--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com
--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com
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