FILE PHOTO -  A woman pauses as she shops at a wholesale market in Yiwu, Zhejiang province January 11, 2011.   REUTERS/Carlos Barria/File Photo
FILE PHOTO - A woman pauses as she shops at a wholesale market in Yiwu, Zhejiang province January 11, 2011. REUTERS/Carlos Barria/File Photo

Inflation reaches multi-year highs in China

Producer prices picked up more than expected in January to near six-year highs as steel and other raw materials extended their rally

February 14, 2017 3:17 PM (UTC+8)

China’s producer price inflation picked up more than expected in January to near six-year highs as prices of steel and other raw materials extended their rally, adding to views that global manufacturing activity is building momentum.

China consumer inflation also rose more than expected, nearing a three-year high as fuel and food prices jumped, data showed on Tuesday.

Much of the pick-up in consumer prices was likely due to higher food and travel costs heading into the long Lunar New Year holiday, the National Bureau of Statistics said.

Mounting price pressures in China and many other countries have sparked talk of tighter monetary policy this year, after years of super-loose settings aimed at reviving economic growth.

China’s central bank raised short-term interest rates in recent weeks as it looks to contain risks from an explosive growth in debt, while India’s central bank last week unexpectedly signalled an end to its longest easing cycle since the global financial crisis, citing inflation risks.

Some analysts, however, believe the ramp-0up in price pressures in China may be short-lived, noting that a jump in January food prices was likely seasonal and that producer price gains slowed by half on a month-on-month basis.

Consumer inflation quickened to 2.5% in January from a year earlier, the highest since May 2014.

But it is still well within the government’s comfort zone of 3%, and is showing few signs yet that the jump in producer prices is filtering through to the broader economy, analysts say.

Analysts polled by Reuters had predicted the consumer price index would rise 2.4%, after a 2.1% gain in December.

Food prices, the biggest component of CPI, rose 2.7% in January, led by a 7.1% increase in the price of pork.

Fuel costs surged 16.5% on-year, the biggest increase among CPI components, likely due to a low comparison in the year-ago period when fuel prices fell.

Producer price inflation accelerated to 6.9% — the fastest since August 2011 — from December’s rise of 5.5%.

Gains in the producer price index were driven by a 31.0% increase in mining costs as coal prices rose, the biggest jump in that category since early 2010.

The market had expected producer prices to rise 6.3% on an annual basis.

China’s massive imports of coal, crude oil, iron ore and industrial materials have helped fuel a sharp rebound in global resources prices in recent months, boosting profits for producers and processors.

Iron ore futures in China rose for a sixth session in a row on Tuesday, hitting their highest in more than three years, while London copper futures have climbed to around 20-month highs.

But heady increases in China’s commodity futures market, especially for iron ore, metal reinforcing bars and coking coal used in steel production, have added to policymakers’ worries about speculative price bubbles.

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