BEIJING • China's producer prices jumped more than expected last month as prices of coal and other raw materials surged in the midst of a supply crunch and a pick-up in the economy.
Consumer prices also beat expectations, accelerating to a six-month high, though analysts say the room for further rises is limited.
"We think producer price inflation will recover further in coming quarters but will top out at a little over 4 per cent year on year before dropping back again," said economist Julian Evans-Pritchard of Capital Economics.
"The scope for further rises in consumer price inflation is likely be more limited given that credit growth has begun to slow, house prices are starting to cool and farmers have responded to high pork prices by boosting pig supply."
With producer prices pulling out of nearly five years of deflation and the economy showing broad signs of stabilisation, pressure on Beijing to support growth has eased, with the policy focus now on controlling asset bubbles and other risks.
Factory prices rose 1.2 per cent on-year, the fastest pace since December 2011, after turning marginally positive in September for the first time in nearly five years, the National Bureau of Statistics (NBS) said yesterday.
The reading handily beat forecasts for a 0.8 per cent rise, with the increase led by higher prices for companies involved in the production and processing of raw materials. On a month-on-month basis, producer prices rose 0.7 per cent.
Coal prices in China are in the midst of a months-long rally, with prices hitting fresh records on an almost daily basis in recent weeks after government-enforced closures tightened supplies for utilities, triggering a scramble for raw materials ahead of the winter.
Stronger factory prices have helped boost industrial profits, relieving some pressure on companies squeezed by higher costs and weak demand, though there are concerns some of the gains are due to speculation and are not sustainable.
Improved cash flows should also give companies more room to service heavy debt loads, a key concern for the government.
Corporate China sits on US$18 trillion (S$25 trillion) in debt, equivalent to about 169 per cent of gross domestic product, according to figures from the Bank for International Settlements. Most of it is held by state-owned companies.
China's consumer prices also rose last month, increasing at the fastest pace since April as food prices picked up.
The consumer price index (CPI) rose 2.1 per cent last month from a year earlier, compared with a 1.9 per cent increase in September. A jump in food prices fuelled faster consumer inflation. Food prices rose 3.7 per cent, compared with a 3.2 per cent gain in the previous month. Non- food prices inched up 1.7 per cent versus September's 1.6 per cent gain.
On a monthly basis, consumer prices fell 0.1 per cent. Prices for healthcare rose 4.8 per cent, the fastest-rising CPI sub-category.
China's producer price index is expected to continue to increase year on year in the coming months, statistics bureau spokesman Sheng Laiyun said in late October.
Factory activity increased at the fastest pace in over two years last month, China's official purchasing manager survey showed last week.
The rebound in pricing power may be reaching its limits, however, as prices of some materials surge to multi-year highs and a property boom shows signs of peaking.