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October 15, 2016

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China’s inflation rises more robustly

CHINA’S consumer and producer inflation posted a stronger-than-expected rise last month, signaling the economy was stabilizing and demand was picking up.

Consumer prices rose 1.9 percent year on year in September, while producer prices added 0.1 percent, the first increase since March 2012, the National Bureau of Statistics said yesterday.

For the fifth consecutive month, figures were lower than the 2.3 percent registered in April, when the Consumer Price Index reached its highest level since July 2014.

CPI climbed an annual 1.3 percent in August, marking a near one-year low and significantly slower than July’s 1.8 percent spike.

On a month-on-month basis, the CPI rose 0.7 percent in September.

Bureau statistician Yu Qiumei largely attributed the moderate inflation growth in September to rising food prices, which gained 3.2 percent. The price of fruit and vegetables rose 7.5 percent and 6.7 percent, respectively, year on year in September, compared with 3.9 percent and 0.6 percent decreases in August.

In addition, the price of services also increased in September, with education services prices rising 3.2 percent year on year, compared with a 2.2 percent rise in August.

Since January, the CPI has been calculated using a new comparison base and includes more products and services while slightly reducing the weighting of food.

The Producer Price Index, a main gauge of factory-gate inflation, ended a 54-month straight decline on the back of recovering commodity prices and a low base, analysts said.

“Coal, ferrous and nonferrous metal prices should be the main driver of the recovery in the near term,” wrote David Qu and Raymond Yeung from Australia and New Zealand Banking Group.

“Industrial profitability should continue to improve with the recovery of producer’s prices in the near term. We expect the overall inflation to remain stable by the year end.”

The positive reading is also attributable to the country’s capacity-cutting and destocking, which trimmed oversupply, and recovering commodity prices of crude oil, iron ore and nonferrous metals in the global market, statistics bureau’s Yu said.

Bill Adams, senior international economist at PNC Financial Services, said in a note yesterday: “An uptick in inflation, if sustained, would be good news for China’s ability to service its overhang of corporate debt.

“Higher prices for heavy industrial products will provide China’s heavily indebted corporations with more top-line revenue,” Adams said. “With low interest rates keeping debt service costs in check and producer prices rising, the outlook for Chinese industrial profits is improving.”

The inflation data came after exports tumbled 10 percent in US dollar terms in September and imports fell 1.9 percent.

A separate report on Thursday showed foreign direct investment rose at an annual 4.2 percent in the year to September, down from 4.5 percent the previous month.


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