China economy reflating as producer prices rise at fastest pace

BEIJING: China’s producer prices rose at the fastest pace in more than five years in November as prices of coal, steel and other building materials soared, boosting industrial profits and giving firms more cash flow to pay off mountains of debt.
The stronger-than-expected 3.3 per cent surge in prices, along with upbeat factory readings from China, the United States and Europe, add to views that the global economy may be slowly reflating again thanks to a pick-up in industrial activity.
“This (the PPI jump) confirms our view that China has emerged from a multi-year deflationary trap,” ANZ said in a note.
While some heavy industries such as coal mining, steel mills and metal processors saw the biggest rebound, official data on Friday showed the price recovery was also becoming more broad-based, with more sectors emerging from deflation.
Consumer inflation also picked up more than expected to 2.3 per cent from a year earlier, the highest since April, due to higher food prices.
Though the price gains were modest, they reinforced views that the central bank will be in no rush
to loosen monetary policy again
any time soon, and even fuelled speculation as to when the People’s Bank of
China may start tightening conditions.
China’s central bank has not cut interest rates since October 2015, when worries about deflation were more pressing, opting instead for regular injections of funds into the financial system and targeted infusions of cash into the weakest parts of the economy, such as rural areas.
“While there remains no immediate pressure on the central bank to raise interest rates, the uptick in inflationary pressures in November, combined with downward pressure on the renminbi-exchange rate, highlight the risk that monetary policy tightening may begin earlier than The EIU currently expects,” said Dan Wang, China analyst at The Economist Intelligence Unit.
Wang currently expects the PBoC will start to raise interest rates from the fourth quarter of next year.
Analysts polled by Reuters had expected producer prices to rise by a more modest 2.2 per cent, up from 1.2 per cent in October, while consumer prices had been expected to pick up marginally to 2.2 per cent from 2.1 per cent. — Reuters