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China sees more inflationary pressure

CHINA'S consumer inflation accelerated to the quickest in seven months while factory inflation hit a five-year high, indicating further domestic demand stabilization.

China’s Consumer Price Index, a general gauge of inflation, rose 2.3 percent last month year on year, compared with a 2.1 percent gain in October, the National Bureau of Statistics said today.

It was the quickest increase since April this year.

Faster price hikes in green vegetables, gasoline and utilities were main cause for the warmer consumer inflation, according to Sheng Guoqing, a senior bureau analyst.

On a year-on-year basis, vegetable prices soared 15.8 percent, compared with 13-percent increase in October.

Prices of petrol, diesel, gas, coal, water and electricity also increased last month partly due to the cold weather, according to Sheng.

Meanwhile, the Producer Price Index, a factory-gate measure of inflation, rose 3.3 percent from a year ago, the most since October 2011. The growth also beat market expectations for 2.2 percent according to a Reuters poll.

It was the first time since 2011 that factory inflation outpaced consumer inflation, a positive sign for industrial profits.

Coal mining and ferrous metal processing industries made the biggest contribution to the price increases, said Sheng with the bureau.

The data showed that 29 out of 36 sectors surveyed emerged out of deflation, up from 25 in October.

Economists said the warming of both consumer and factory inflation marked an end to a multi-year deflationary trap in China with demand picking up.

“PPI inflation beat market expectations substantially in November. Heavy industries, which benefited from accelerating construction activity and also saw most aggressive supply curbs recovered at the fastest pace,” said Li Jing, an economist with the HSBC. “In the coming months, low base effect, private investment stabilization and supply side adjustments will continue to support the rebound in inflation.”

However, she said that an 'over-heating' is unlike in the near term given the uncertainty in external demand and property market.

Li said she expected more demand stabilization and policy support in 2017 to sustain the reflation.

The Australia and New Zealand Banking Group in a note predicted PPI to rise by 2.5 percent and CPI to increase 2.4 percent year-on-year in 2017.

“Provided that the government’s enforcement continues to speed up capacity reduction, market conditions will favor a recovery in prices,” the note said.


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