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December 10, 2016

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Home » Business » Economy

CPI and factory inflation pick up pace

CHINA’S consumer inflation accelerated at its quickest rate in seven months in November, while factory inflation hit a five-year high, indicating further stabilization of domestic demand.

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

It was the quickest monthly increase since April.

Green vegetables, gasoline and utilities were the main drivers behind the rising consumer inflation, said Sheng Guoqing, a senior bureau analyst.

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

Petrol, diesel, gas, coal, water and electricity prices also rose last month, partly due to the cold weather, said 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 of 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.

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

Economists said the rises in both consumer and factory inflation marked an end to a multiyear deflationary period 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,” Li Jing, an economist with HSBC, wrote in a note yesterday.

“In the coming months, low base effect, private investment stabilization and supply-side adjustments will continue to support the rebound in inflation.”

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

Zhao Yang, chief China economist of Nomura Securities, said he expected inflation to approach or exceed the government’s target in the first quarter next year, but rising prices would not open up room for monetary policy tightening as the economic recovery remained fragile.

He said the central bank might cut the reserve requirement rate for banks once next year to offset possible capital outflow, while interest rate rises were unlikely.

Australia and New Zealand Banking Group in a note predicted PPI to rise 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.

The latest inflation data echoed with November’s trade data and manufacturing activity indexes that nurtured sentiment for a potentially improved economic outlook in China.

China’s foreign trade surged in yuan terms last month with exports up 5.9 percent year on year and imports jumping 13 percent year on year, both beating market expectations, the Customs said on Thursday.


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