(Repeats story with no changes to text)
* Producer price inflation +6.4 pct y/y
* PPI negative m/m for first time since June
* Consumer price inflation +1.2 y/y
By Elias Glenn
BEIJING, May 10 China's April producer price
inflation cooled more than expected in a sign manufacturing
activity may be losing momentum along with other sectors of the
economy as domestic demand remains muted and the government
cracks down on financial risks.
Prices for raw materials fell in April from the previous
month, pressured by fears that domestic demand will not be
strong enough to absorb surging factory output that rose the
most in more than two years in March.
A renaissance in China's steel industry has been a major
driver of the world's second-largest economy in recent quarters,
helping generate the strongest profit growth in years and adding
to a reflationary pulse across the global manufacturing sector.
But China's reflation cycle in producer prices has probably
peaked, and will trend down further, which could drag on China's
economic growth in the second half of the year, said Betty Wang,
senior China economist for ANZ in Hong Kong.
"The recovery momentum in the economy that emerged in the
second half of last year was mainly driven by producer price
inflation rather than any changes from a fundamental
perspective," Wang said.
The soft April inflation data, combined with slightly slower
growth in manufacturing activity, reinforces analysts' views
that China's economic expansion remains solid but is starting to
moderate after a surprisingly strong start to the year.
First-quarter economic growth came in at a
faster-than-expected 6.9 percent, which could give the economy
enough of a tailwind to hit Beijing's full-year target even if
growth starts to fade in coming quarters as many analysts
With growth comfortably above this year's target of around
6.5 percent, Chinese policymakers have shifted focus to reining
in financial risks, which ANZ's Wang said will not change based
on trends in producer and consumer prices.
"Deleveraging remains the policy focus, regardless of the
PPI or CPI trend. We don't think PPI or CPI will have any
significant impact on the current policy direction," said Wang.
The producer price index (PPI) in April rose 6.4 percent
from a year earlier, the National Bureau of Statistics said on
Wednesday - cooling for the second month in a row. It was slower
than economists' expectations for a 6.9 percent rise and easing
further from the previous month's gain of 7.6 percent.
Analysts said the rally in producer prices may have peaked
as a torrid rally in China's commodities markets showed signs of
correcting. Iron ore and steel hit multi-month lows on China's
future markets in April amid concern over rising inventories.
Capital Economics said in a report that producer prices were
set to fall again in May given that the rout in industrial
commodity prices had deepened.
"Further ahead, producer price inflation should continue to
wane as policy tightening weighs on economic activity...hopes
for a sustained reflation in China are fading."
On a month-on-month basis, producer prices fell 0.4 percent
in April, the first drop since June, led by declines in iron and
steel smelting and processing.
Iron and steel processing prices fell 3.1 percent
month-on-month in April, compared with a 2.3 percent rise in
March, while oil and natural gas prices also fell after rising
the previous months.
In March, China's PPI cooled for the first time in seven
months as commodities prices tumbled, pressured by fears that
Chinese steel production is outweighing demand and threatening a
glut of the metal later this year.
Factory gate prices had only turned positive on a
year-on-year basis last September, after falling for nearly five
years, leaving many industrial firms saddled with idle capacity
and less cash flow to service their debts.
The consumer price index (CPI) in April rose 1.2 percent
from a year earlier, the statistics bureau said, up from a 0.9
percent rise in March and slightly above analysts' forecasts.
Food prices, the biggest component of the consumer price
index (CPI), fell 3.5 percent.
Core inflation inched up to 2.1 percent, with costs for
health care rising 5.7 percent.
Analysts polled by Reuters had predicted April consumer
price inflation would edge up to 1.1 percent but remain well
within the central bank's comfort zone, giving it room to
continue with a gradual pace of monetary policy tightening
without hurting economic growth.
China's annual inflation is to average 2.1 percent in 2017
and 2.3 percent in 2018, according to a Reuters poll of over 75
Beijing is targeting consumer inflation of 3 percent this
year, unchanged from 2016.
Chinese President Xi Jinping called last month for increased
efforts to ward off systemic risks to help maintain financial
security, the official Xinhua news agency reported.
(Editing by Jacqueline Wong)