China industrial inflation surges on coal and steel price rally

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Producer prices at China’s factories surprised the market on the upside in the last month of 2016, although consumer inflation eased slightly, according to data released by the National Bureau of Statistics on Tuesday.

The producer price expanded at a faster rate after bouncing back into positive growth from August. It surged by 5.5 per cent in December from the same period in the previous year, outperforming the 4.6 per cent gain forecast by economists.

The rise was also much higher than the 3.3 per cent posted in November, thanks to a strong price rally in coal and steel products.

A weakening yuan has also translated into higher prices of imported commodities, the statistics agency said in a statement.

“The surge in PPI inflation partially reflects the impact of structural reforms which have reduced the overcapacity in some sectors, but also illustrates the massive speculation in China’s onshore commodity futures market, especially rebar [reinforced steel used in construction] and coking coal,” said Zhou Hao, a Singapore-based economist at Commerzbank.

Consumer price inflation rose 2.1 per cent in December, lower than the expected 2.2 per cent and the gain of 2.3 per cent in November, suggesting a softening inflation momentum.

Lu Zhengwei, chief economist at Industrial Bank, said the rapid rises in producer prices were yet to translate into other sectors of the economy which were reluctant to increase prices rapidly as overall demand remained weak and the central bank was unlikely to further tighten monetary policy.

Zhou at Commerzbank said monetary easing “has reached a turning point” as Beijing has prioritised deflating bubbles in the economy this year and he expected policy tightening in the coming quarters.

Xu Shaoshi, the director of the National Development and Reform Commission, said on Tuesday that the scale of the economy would exceed 70 trillion yuan (HK$78 trillion) in 2016, with GDP growth expected to reach 6.7 per cent.

He said the government was working on a plan to further retire overcapacity in 2017 after the government met targets to cut coal capacity by 250 million tonnes and steel 45 million tons last year, earlier than planned.

The producer price index fell by 1.4 per cent in 2016, stretching the falling streak to a fifth year, but the decline was much lower than the drop of 5.2 per cent posted in 2015.

Consumer price inflation rose 2.1 per cent in December, lower than the expected 2.2 per cent and the gain of 2.3 per cent in November.

The consumer price index grew two per cent in 2016, bouncing from 1.4 per cent in 2015.

Read the original article on the South China Morning Post.


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