China inflation rises more than expected, signalling stabilising demand

 Shoppers ride on a travelator at a supermarket in Beijing, China.
Shoppers ride on a travelator at a supermarket in Beijing, China. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's consumer inflation increased more than estimated in November, boosted by price gains for services, signalling demand in the world's second-largest economy is stabilising after accelerated fiscal stimulus and a year of interest rate cuts.

The consumer-price index rose 1.5 per cent in November from a year earlier, the National Bureau of Statistics said on Wednesday (Dec 9), compared to the 1.4 per cent median estimate in a Bloomberg survey and 1.3 per cent in October.

The producer-price index fell 5.9 per cent, compared to a projected 6 per cent drop, extending declines to 45 months.

"Industrial demand has generally stabilised," said Mr Chen Xingdong, chief China economist at BNP Paribas SA in Beijing. "We'll probably see a significant improvement in PPI from January thanks to a lower base. The government's pro-growth measures will also be more intensive next year."

Firming inflation, supported by a 2.1 per cent increase for services, and slower declines in imports signal some stabilisation in demand after six central bank interest rate cuts in a year and expanded government spending.

The pickup still leaves room for additional easing, as CPI is forecast to rise at half of the government's target this year, according to a Bloomberg survey.

The 2.1 per cent increase for services was offset by a 1.2 per cent gain for consumer goods. Food prices climbed 2.3 per cent, while non-food items rose 1.1 per cent.

"Fiscal policy will likely pull more weight in stabilising growth in 2016," China International Capital Corp analysts led by Liang Hong wrote in a report before the data release. "Fiscal policy will likely take the form of both effective tax cut and increase in government expenditure."