Executive Briefings

China Factory Prices Rising Fastest In 5 Years Adds To Reflation

China's producer price index rose at the fastest pace in more than five years in December as the factory to the world swings from being a drag on global inflation to another potential force pushing prices higher.

Four months out of a multi-year factory deflation, the world's second-largest economy is poised to export inflation around the globe through its supply chains as manufacturers squeezed by higher input costs raise asking prices. Whether that rebound will be sustained hinges on how the global economy fares under a Donald Trump presidency and whether trade tensions flare between the U.S. and China.

"Reflation continues in the factory sector," said Julia Wang, an economist at HSBC Holdings Plc in Hong Kong. "The stable CPI suggests that the reflation is confined mostly in the industrial sector and hasn’t filtered into the real economy. So the PBOC would possibly not respond to it until inflation expands to the real economy."

Among producer prices, those for mining surged 21.1 percent in December from a year earlier while raw materials increased 9.8 percent.

PPI rose faster as a weaker currency lifted imported commodity prices, demand for industrial products recovered and the effect of overcapacity reduction kicked in, the National Bureau of Statistics said in a statement released with the data.

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Four months out of a multi-year factory deflation, the world's second-largest economy is poised to export inflation around the globe through its supply chains as manufacturers squeezed by higher input costs raise asking prices. Whether that rebound will be sustained hinges on how the global economy fares under a Donald Trump presidency and whether trade tensions flare between the U.S. and China.

"Reflation continues in the factory sector," said Julia Wang, an economist at HSBC Holdings Plc in Hong Kong. "The stable CPI suggests that the reflation is confined mostly in the industrial sector and hasn’t filtered into the real economy. So the PBOC would possibly not respond to it until inflation expands to the real economy."

Among producer prices, those for mining surged 21.1 percent in December from a year earlier while raw materials increased 9.8 percent.

PPI rose faster as a weaker currency lifted imported commodity prices, demand for industrial products recovered and the effect of overcapacity reduction kicked in, the National Bureau of Statistics said in a statement released with the data.

Read Full Article