China Faces Deflation as Commodities Tumble: Chart of the Day

China faces deflation next year as food and commodities prices have plunged, which will prompt the central bank to cut interest rates further, according to Goldman Sachs Group Inc. and JPMorgan Chase & Co.

The CHART OF THE DAY shows the rates of change for China's consumer-price and producer-price indexes, one way to compare manufacturing and retail cost trends. The PPI grew at a slower rate than CPI in November for first time since April, according to data compiled by Bloomberg News. The chart also shows the Goldman Sachs China Commodity Index, comprising spot prices of coal, steel, aluminum and copper.

With CPI inflation at 2.4 percent, from a 2008 high of 8.7 percent, opponents of further rate cuts by the People's Bank of China ``have lost their arguments,'' Yu Song, a Hong Kong-based economist for Goldman Sachs, wrote in a report that forecast another 2 percentage point lending-rate cut next year.

Among the main indicators that both consumer and producer prices will ``fall to negative territory very soon'' are decelerating retail food costs and a decline in coal of more than 30 percent month-on-month, the report said.

``Unlike in many other countries, the surge in Chinese prices earlier in the year was primarily due to the rise in certain food prices, which have now receded,'' Jing Ulrich, chairwoman of China equities at JPMorgan in Hong Kong, said in a separate report. ``There is further scope for the central bank to ease monetary policy in an effort to avoid an excessive slowdown and stave off deflation. We also expect further fiscal stimulus measures.''

Copyright and Exemption Declaration :¢ÙAll articles, pictures and videos that are marked with "China Aluminum Network" on this website are copyright and belong to China Aluminium Network (www.alu.com.cn). When transshipment, any media, website or individual must list the source from "China Aluminium Network (www.alu.com.cn)". We seek legal actions against anyone that disobey this. ¢ÚArticles that marked as copy from others are for transferring more information to readers, do not represent or endorse their opinions or accuracy and reliability. When other media, website or individuals copy from our website, must keep the source. Anyone that changes the articles' sources will hold the responsibilities for copyright and law problems. We also seek legal actions against anyone that disobey this. ¢ÛIf any articles copied by our website concern the copyright and other problems, please contact us within one week.