BEIJING • China's producer prices rose at the fastest pace in more than five years last month as prices of coal, steel and other building materials soared, boosting industrial profits and giving firms more cash flow to pay off mountains of debt.
The stronger-than-expected 3.3 per cent surge in prices, along with upbeat factory readings from China, the United States and Europe, adds to views that the global economy may be slowly reflating again, thanks to a pickup in industrial activity.
"This (the producer price index jump) confirms our view that China has emerged from a multi-year deflationary trap," ANZ said in a note.
While some heavy industries such as coal mining, steel mills and metal processors saw the biggest rebound, official data yesterday showed the price recovery was also becoming more broad-based, with more sectors emerging from deflation.
Consumer inflation also picked up more than expected to 2.3 per cent from a year earlier, the highest since April, due to higher food prices.
Surge in China's producer prices in November.
Rise in China's consumer inflation from a year earlier.
Though the price gains were modest, they reinforced views that the central bank will be in no rush to loosen monetary policy again any time soon, and even fuelled speculation as to when the People's Bank of China (PBOC) may start tightening conditions.
China's central bank has not cut interest rates since October last year, when worries about deflation were more pressing, opting instead for regular injections of funds into the financial system and targeted infusions of cash into the weakest parts of the economy, such as rural areas.
"While there remains no immediate pressure on the central bank to raise interest rates, the uptick in inflationary pressures in November, combined with downward pressure on the yuan exchange rate, highlights the risk that monetary policy tightening may begin earlier than the EIU currently expects," said China analyst Dan Wang of the EIU or Economist Intelligence Unit.
He currently expects the PBOC will start to raise interest rates from the fourth quarter of next year.
China's economy expanded at a steady 6.7 per cent in the third quarter and looks set to hit Beijing's full-year target, fuelled by stronger government spending, record bank lending and a red-hot property market that are adding to its growing pile of debt.
But the world's second-largest economy is expected to slow next year, as effects from previous stimulus start to fade.