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China’s PPI and CPI rises as inflation stabilizes

By Arthur Greene November 9, 2016
Chinese-economy

China's producer price index soared to nearly a five-year high in October, suggesting the world's second-largest economy is continuing to stabilize.

The index rose 1.2% from a year earlier, according to figures released by the National Bureau of Statistics on Wednesday.

Chinese firms have for years been battered by falling prices for their goods in the face of chronic overcapacity and weak demand, putting a damper on growth in a key driver of the world economy.

October's pickup was mainly due to price increases in "five major industries," said Yu Qiumei, a senior statistician at China's statistics department. He was referring to coal mining and washing, ferrous smelting and rolling processing, non-ferrous smelting and rolling processing, petroleum processing and petroleum and gas mining.

Surging prices for key industrial commodities, particularly coal, appeared to drive the increase, and "the trend will continue for a while until it heads down next year", Larry Hu of Macquarie Securities in Hong Kong.

China’s producer-price index rose by a faster-than-expected 1.2% in October from a year earlier, compared with September’s 0.1% increase. Before September’s uptick, the gauge of factory prices had lingered in deflationary territory for more than four years.

Last month’s inflation results were below the 3% level that Beijing has set as the upper limit of what it will tolerate this year, providing leaders with leeway to loosen monetary policy if needed to further stabilize economic growth.

With October's data coming in stronger than expected, we see upside risks to our forecasts of PPI and CPI inflation in the October-December quarter 2017," said Yang Zhao, an economist at Nomura. And with rising inflation providing brief relief for policymakers, Nomura expects no further monetary policy moves for the rest of the year.

“We’re seeing quite mild inflation mainly driven by a low base, which pushes up food prices on an annualized basis,” said RHB Capital economist Zhang Fan. “But I don’t see them easing policy further”.

Their priority task is to curb the asset bubble as money flows into property and commodity markets.”

China's producer price index is expected to continue to increase year-on-year in the coming months, statistics bureau spokesman Sheng Laiyun said in late October.

"I believe PPI in the coming months will continue to show positive growth year-on-year, but it could be volatile month-on-month," Sheng told a group of foreign reporters.

Other data have showed a mixed picture of the Chinese economy, as exports sank for the seventh straight month and came in below forecasts in October.

Overseas shipments fell 7.3 percent year-on-year, while imports also dropped 1.4 percent, Customs said Tuesday.

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By Arthur Greene November 9, 2016

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