Strong data shows China economy still robust

Producer prices and consumer inflation both up in October

BEIJING • China's producer prices were surprisingly strong last month, while consumer inflation picked up pace in a sign the economy remains robust, with analysts expecting further price pressure as the government's crackdown on smog hurts factory output.

Beijing is already in the second year of a campaign to reduce high levels of debt, keeping liquidity conditions relatively tight as it seeks to flush out speculative financing. Growth, however, has remained strong this year, thanks to a construction boom that has driven up raw materials prices and in part fed inflationary pressures.

Analysts say ramped up rules to bring polluting factories to heel will add to the price pressures. The producer price index (PPI) rose 6.9 per cent last month from a year earlier, despite muted activity during a week-long golden week holiday, data released by the National Bureau of Statistics showed yesterday.

It was in line with the growth rate in September when it hit a six-month high.

"The upshot is that price pressures in China appear strong on the back of still rapid economic growth, a tight labour market, capacity cuts and temporary disruptions to industrial production," Capital Economics' China economist Julian Evans-Pritchard wrote in a note to clients.

"Price pressures may remain strong for a while longer as the anti-pollution campaign keeps commodity prices elevated and this feeds through into core inflation."

Analysts polled by Reuters had expected PPI inflation rate would slow to 6.6 per cent.

Consumer inflation, which has stayed well within Beijing's 2017 target of 3 per cent this year, also grew more than expected to 1.9 per cent from 1.6 per cent in September, as food prices fell at a slower pace and due to low base effect.

China's robust growth this year, underpinned by a renaissance in long-ailing "smokestack" industries such as steel, has surprised financial markets and investors. But property and construction activity, two of the economy's main growth drivers, are starting to slow due to higher borrowing costs and government measures to cool a heated housing market.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 10, 2017, with the headline 'Strong data shows China economy still robust'. Print Edition | Subscribe