Factory inflation eases to 13-month low in China

BEIJING • China's factory inflation slowed to a 13-month low in December, official data showed yesterday, a sign of continued fragility in the world's second-largest economy.

The producer price index (PPI) - an important barometer of the industrial sector which measures the cost of goods at the factory gate - rose 4.9 per cent year-on-year in December, its lowest rate since November 2016, according to China's National Bureau of Statistics (NBS).

This marked a sharp slowdown from the 5.8 per cent year-on-year rise in November and 6.9 per cent rise in October, but was slightly higher than the 4.8 per cent increase forecast by a Bloomberg News survey of economists.

NBS analyst Sheng Guoqing said the drop was due to declines in five major industries: oil and natural gas mining, ferrous metal smelting, oil processing, non-ferrous metal smelting, and coal mining.

A further decline in the PPI - highly correlated with earnings growth among indebted industrial firms - would push the central bank "to ease monetary policy over the course of this year", said Mr Julian Evans-Pritchard, analyst at Capital Economics, in a note.

Meanwhile, the consumer price index (CPI) - a main gauge of retail inflation - rose 1.8 per cent year-on-year, up from 1.7 per cent in November and just below the Bloomberg forecast of 1.9 per cent.

Month-on-month, the CPI rose 0.3 per cent, which the NBS attributed to the rising prices of fresh foods like fruit and eggs and energy such as petrol and diesel during a period of cold weather.

Moderate inflation can be a boon to consumption as it pushes buyers to act before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment.

NBS' full-year data showed a 6.3 per cent rise in the PPI, ending a five-year fall, and a 1.6 per cent rise in the CPI for 2017.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on January 11, 2018, with the headline 'Factory inflation eases to 13-month low in China'. Print Edition | Subscribe