China producer prices jump as demand goes up

BEIJING: Prices for goods at the factory gate in China jumped in March, the government said on Wednesday, in a positive sign of strengthening demand for the world’s second-largest economy.
The producer price index (PPI) rose 7.6 per cent year-on-year in March, according to the National Bureau of Statistics, slightly beating economists’ expectations of a 7.5 per cent increase in a Bloomberg News survey.
Factory gate inflation “has eased”, NBS analyst Sheng Guoqing said in a statement, noting that March’s figure fell back from a 7.8 per cent increase in February after five months of expansion.
The February figures reflected the fastest increase since September 2008, raising hopes that the pick-up in prices could trickle down to other economies.
For years the world economy has been mired in tepid inflation or deflation which, if persistent, tends to be bad for industrial prospects and economic growth because customers delay purchases in hopes of getting cheaper deals in the future, starving companies of business and funds.
China’s economy, a vital engine of global growth, expanded 6.7 per cent for all of last year, the slowest rate in a quarter of a century.
But a slight uptick in the last three months of 2016 provided signs of stabilisation.
The upward trend in the prices for goods at the factory gate is a positive signal, Dariusz Kowalczyk at Credit Agricole SA told Bloomberg News.
“It looks like there’s a lot of inflation momentum at the producer level, which is good because they’ll have higher profits and more money to invest,” he said.
“Stronger industrial recovery will continue to boost confidence in the economy and investment,” Li Wei of Commonwealth Bank of Australia told Bloomberg.
But coming months will likely see a decrease in producer price inflation “as base effects become less favourable and economic activity begins to cool on the back of a tighter policy stance”, Julian Evans-Pritchard of Capital Economics said in a research note.
“Those anticipating a further reflation in China are likely to be disappointed,” he added.— AFP