China's PPI accelerates at fastest pace in 5 years

The prices of coal and other raw materials have soared in China, on the back of surging demand for heating and steelmaking.
The prices of coal and other raw materials have soared in China, on the back of surging demand for heating and steelmaking.PHOTO: REUTERS

Robust demand pushes up producer price index; stronger global inflation expected

BEIJING • China's producer prices surged the most in more than five years last month and by more than expected as prices of coal and other raw materials soared, adding to expectations that global inflation may be stronger this year.

The pickup in prices reinforces views that the world's second-largest economy is on steadier footing this year, underpinned by stronger factory activity and domestic demand which is being driven by a lending and construction boom.

But some analysts worry that the strong gains in producer prices may also be fuelled by growing speculation in commodities futures markets, adding to the broader risk of bubbles in China's economy, even as leaders attempt to control explosive growth in debt.

"I don't think there's an inflation issue in China, it's an asset bubble," said Commerzbank senior emerging market economist Zhou Hao in Singapore.

The producer price index (PPI) jumped 5.5 per cent last month from a year earlier, the most since September 2011, compared with a 3.3 per cent increase in November, the National Statistics Bureau said yesterday. This is boosting profits for China's heavily indebted smokestack industries, which are largely state-owned, and generating more cash flow to help pay off their loans.

  • 5.5%

    Increase in December's producer price index from a year earlier.

    2.1%

    Year-on-year rise in consumer inflation.

Analysts had expected a 4.5 per cent gain, a Reuters poll showed.

Reflecting surging demand for building supplies and coal for both heating and steelmaking, and government-mandated cuts in excess industrial capacity, raw materials and mining prices continued to show the fastest gains, rising 9.8 per cent and 21.1 per cent, respectively.

The statistics bureau said volatility in exchange rates was one reason for the rise in producer prices, as commodity imports became pricier.

The yuan weakened 6.5 per cent against the dollar last year, its worst performance since 1994.

Consumer inflation rose 2.1 per cent year on year, missing expectations, while food prices rose 2.4 per cent.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 11, 2017, with the headline 'China's PPI accelerates at fastest pace in 5 years'. Print Edition | Subscribe