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January 11, 2017

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PPI rises rapidly while CPI cools

CHINA’S factory-gate prices rose in December at the fastest pace in more than five years while consumer inflation cooled.

The Producer Price Index, which measures costs for goods at the factory gate, gained 5.5 percent year on year in December, the highest since September 2011, the National Bureau of Statistics said in a statement yesterday.

The increase picked up from 3.3 percent in November and 1.2 percent in October.

For the whole of last year, PPI fell 1.4 percent but the decline narrowed from a 5.2 percent drop in 2015.

The Consumer Price Index, a main gauge of inflation, rose 2.1 percent in December, down from November’s 2.3 percent, the bureau said.

CPI’s full-year growth of 2 percent was faster than the 1.4 percent rise in 2015 but below the official target of 3 percent.

The cooler consumer inflation was attributed to a slower rise in prices of green vegetables, and the faster factory-gate price increase was due to higher import prices of raw materials and improved demand, said Sheng Guoqing, a bureau analyst.

Food prices added 2.4 percent in December, lower than the 4 percent gain in November, and prices of green vegetables rose by a slower 2.6 percent, compared with the 15.8 percent jump in November.

Non-food inflation, however, rose 2 percent, bigger than November’s 1.8 percent gain.

Under pressure from a downturn in the broader economy, the PPI had been trapped in negative territory for 54 months before returning to growth in September. Analysts expect the current rising trend to continue in January.

The better-than-expected increase, indicating stronger profits for Chinese companies, came as an encouraging sign for the slowing economy, adding to hopes that China will gain a firm footing in the start of the new year.

Wang Tao, UBS China economist, said the PPI was mainly driven by price increase of raw materials in the ferrous metal, oil processing and chemical industries, partly due to a yuan devaluation and the low base in 2015.

She predicted PPI to continue to rise this year while consumer inflation is likely to hit a milder 2.3 percent.

The Australia and New Zealand Banking Group predicted in a note that PPI will rise 2.5 percent this year and China’s central bank will keep an adequate liquidity level to support the fragile economic recovery.


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