China factory prices surge most since 2011

China’s producer prices increased the most since 2011, with the world’s biggest exporter further lifting the outlook for global inflation.

Producer price index rose 6.9 per cent in January from a year earlier, compared with a median estimate of 6.5 per cent in a Bloomberg survey and a 5.5 per cent December gain. 

Consumer-price index climbed 2.5 per cent, boosted by the week-long Lunar New Year holiday beginning in January this year, versus a 2.4 per cent rise forecast by analysts.

Producer prices for mining products surged 31 per cent year-on-year while those for raw materials climbed 12.9 per cent, the National Bureau of Statistics said on Tuesday.

China is again exporting inflation as factories increase prices after emerging from years of deflation. That fresh strength may moderate in coming months as year-ago comparisons gradually rise and Donald Trump’s policies add uncertainties to the global demand outlook.

Continued pressure for raw materials is forcing companies to increase prices, according to Tao Dong, senior adviser for Asia Pacific private banking at Credit Suisse Group AG in Hong Kong. "Without strong demand, producers have limited space for price hikes," he said. "But I see a wide range of price increases because the cost push is so severe," he added.

Both consumer and producer inflation will peak soon, Julian Evans-Pritchard, an economist at Capital Economics in Singapore, wrote in a report. "Tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term," he said.

"The latest inflation data add to the case for a continued moderate tightening in monetary policy," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report. "The central bank is likely to continue on that path in the months ahead, as policy makers lean against excess leverage, yuan weakness and capital outflows, and nascent inflationary pressure."

"We haven’t seen significant pass-through effect from PPI to CPI inflation yet, suggesting that the strong rebound in PPI inflation is a reflection of proactive fiscal policies," Zhou Hao, an economist at Commerzbank AG in Singapore, wrote in a report. With the Communist Party Congress later this year, "local governments are keen to deliver decent growth figures. Against this backdrop, the infrastructure investment pipeline will remain solid," he added.

Source :Times Of Oman