China's Purchase Price Inflation Eases to Eight-Month Low, Says HSBC's PMI

After adjusting for seasonal factors, the headline HSBC Purchasing’ Managers Index (PMI) held steady at 51.8 in April, in line with the earlier flash estimate and signalling a moderate improvement in Chinese manufacturing sector operating conditions. However, the latest index reading was down on the long-run series average of 52.3. April’s survey pointed to relatively lacklustre growth of new business and a slower expansion in manufacturing production. Despite this, firms added to their workforce numbers at the fastest rate since last December. Meanwhile, companies continued to reduce their stocks of purchases, partly in an attempt to mitigate against delays in the supply chain.


Manufacturing production continued to rise in April, although the rate of expansion eased to the slowest in the current period of growth, which now extends to nine months. According to survey respondents, the weaker increase in output predominately reflected a subdued rate of new order growth, which was again slower than the long-run trend despite quickening from one month earlier. Anecdotal evidence provided by the survey panel suggested that below par growth reflected relatively soft market demand. Furthermore, only a marginal rise in new export orders was recorded during April.


Outstanding business in the Chinese manufacturing sector increased again in April, extending the current period of expansion to ten months. However, the rate of backlog accumulation was the slowest since last October. A further increase in manufacturing employment was registered during April. Although only modest, the pace of job creation was the fastest in 2011 so far. Where a rise in staff numbers was signalled, panellists commonly attributed growth to higher output requirements.


Slower growth of output was reflected in companies’ purchasing decisions in April. The quantity of inputs bought by Chinese manufacturing firms increased at the weakest rate in nine months. Stocks of purchases decreased moderately, and at the fastest rate since last October, amid delays in the receipt of purchased items. Supply chain problems were highlighted by a further lengthening of average supplier lead times, which was largely attributed by respondents to stock shortage at vendors. The recent earthquake in Japan was also reported to have contributed to delays.


The rate of input cost inflation in the Chinese manufacturing sector moderated to an eight-month low in April, but remained strong nonetheless. Rising raw material prices were cited as the key driver of inflation, with steel mentioned in particular. A number of panellists also mentioned higher oil prices. Firms attempted to offset part of the rise in purchasing costs by raising their prices charged to customers. However, similar to the trend in input costs, the pace of inflation eased to the slowest for eight months.




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