IHS Global Insight on China’s consumer prices and Japan private machinery orders

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Yating Xu, Economist, IHS Global Insight

JAKARTA – IHS Global Insight has provided updates on China’s consumer prices and Japan private machinery orders, which have improved. Followings are the highlights:

Key points:

– China’s consumer price index (CPI) was 2.3% year-on-year (y/y) in March, flat with February readings, according to the National Bureau of Statistics.
– Rising y/y food prices owing to the unusual cold weather during February and March, and cyclical pork price increases continued to drive the inflation.
– Month-on-month (m/m) consumer prices growth declined 0.4% due to eroding holiday effects, reflected in a contracting m/m food and services prices.
– China’s producer price index (PPI) continued to improve from a 4.9% contraction in February to a 4.3% y/y contraction in March, largely due to slower deflation in means of production.
– Meanwhile, the m/m industrial inflation went to expansion for the first time since January 2014.
– Headline improvement came from faster m/m growth in non-ferrous metals processing and ferrous metals processing, and the prices in oil and natural gas mining, ferrous metals mining, chemical materials and chemical products improved to expansion. However, y/y prices remained in deep contraction in the above sectors.

Outlook:

Improvement in Chinese PPI was mainly concentrated in the resources-dominated industries, reflecting the recent recovery in global commodity prices, the result of an oversupply correction in heavy industries. That indicates an improvement in profits for various sectors and moderate recovery of real estate construction. The stabilized CPI in March is in line with IHS February estimates, adding to the possibility of further monetary easing in the second quarter, although annual inflation is expected to improve modestly in 2016 compared with 2015.

 

Japan’s private machinery orders dropped in February

IHS Global Insight principal economist Harumi aguchi said that Japan’s private machinery orders dropped in February due to weak external demand, but stronger yen can prevent sustained recovery

Key points:

– Japan’s private machinery orders (excluding volatiles) — the leading indicator of capital expenditure (capex) — fell 9.2% in February month on month (m/m), following two consecutive months of increases.
– The decline largely reflected the contraction in orders from the iron and steel industry (-92.7% m/m) after a 928.5% rise in the previous month.
– Nevertheless, the third consecutive months of increases in orders from the non-manufacturing industry (excluding volatiles) partially offset the weakness in orders from the manufacturing industry. Solid increases in orders from the transportation and postal activities, information services and miscellaneous non-manufacturing industries contributed to a 10.2% rise in orders from the non-manufacturing industry (excluding volatiles).
IHS Global Insight views:

Despite the weakness in orders from a broad range of manufacturing industries, the buoyant trend in private machinery orders (excluding volatiles) is in line with industry outlooks in the first quarter of 2016. This will probably underpin capex for the first half of 2016.

That said, a modest rebound, following contractions, in orders from overseas suggests that weak overseas demand could weigh on industrial production and, in turn, orders from the manufacturing industry. Rapid strengthening of the yen can also suppress corporate profits and reduce capex in later quarters. (*)

 

 

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IHS Global Insight on China’s consumer prices and Japan private machinery orders

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