China's Economic Risks Build as Delta Cases Spread, Prices Gain

10th Aug,2021

China's Economic Risks Build as Delta Cases Spread, Prices Gain


According to a study, factory-gate inflation surged to 9% in July as commodity prices soared, while core consumer prices — which exclude volatile food and fuel expenses — grew at their fastest rate in 18 months. China's economic risks are increasing in the second half of the year, with growth expected to decelerate and inflation pressures increasing, casting doubt on the central bank's ability to sustain the economy. According to a study released Monday, factory-gate inflation surged to 9% in July as commodity prices soared, while core consumer prices, which exclude volatile food and gasoline expenses, grew the highest in 18 months. At the same time, the delta variant's spread is jeopardising China's prospects, with Goldman Sachs Group Inc. and JPMorgan Chase & Co. lowering third-quarter and full-year growth estimates and anticipating further central bank easing. The recent events add to the complexity for policymakers, who have already committed to fiscal and monetary stimulus in the second half of the year. While some economists believe that inflation concerns restrict central bank action, many others believe that the uncertain growth environment is a larger concern, and that additional easing is inevitable. "Although prices are still high, they won't have much momentum to rise further, so it won't create a huge constraint on monetary policy," said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. "Even though prices are still high, they won't have much momentum to rise further, so it won't create a huge constraint on monetary policy as the outbreak unfolds." Following the release of the data, Chinese government bonds continued to lose ground, with the 10-year bond's yield increasing 4 basis points to 2.85 percent, the highest level since January.