Photographer: Nelson Ching/Bloomberg

China’s Factory Prices Quicken as Drag on Global Inflation Eases

China’s factory-gate inflation picked up further last month while consumer prices accelerated, suggesting government efforts to reduce overcapacity have gained some traction and alleviating a source of global disinflationary pressure.

Key Points

  • Producer-price index rose 1.2 percent in October from a year earlier, compared with a 0.9 percent increase estimated by economists in a Bloomberg survey 
  • Consumer-price index increased 2.1 percent, matching the gain forecast by analysts

Big Picture

China’s factories, scorched by years of rising wages and tepid demand, now face higher raw-material input costs, forcing some to mull their first price increases in years. That could soon translate into higher export prices, easing disinflationary pressure around the world. Consumer inflation, pushed up by increasing rents and higher food prices, remains comfortably within the full-year government ceiling of 3 percent.

Economist Takeaways

"The monetary policy stance will gradually shift from an easing bias early this year to a neutral position" due to CPI and asset price inflation, said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. The rise in PPI is due to both supply-side factors such as infrastructure investment and demand-side factors such as capacity reduction, Ding said.

"Company profits are already improving and recovering producer prices will further benefit them," said Li Wei, the China and Asia economist for Commonwealth Bank of Australia in Sydney. "But whether those profits will turn into new investment remains to be seen."

"This backs further a shift towards fiscal and not monetary policy," said Michael Every, head of financial markets research at Rabobank NA in Hong Kong. "This is all driven by a Chinese version of helicopter money -- fiscal stimulus with tacit PBOC backing. And it works."

"High frequency indices are showing a divergence," said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc in Singapore. "If you look at the those reflecting current business activities such as the industrial profits and PPI, they are showing that China’s economy has stabilized. But if you look at some leading indicators including property sales, and newly added credit, they are showing signs of the economy losing steam."

The Details

  • Purchasing prices rose 0.9 percent from year earlier for first increase since March 2012
  • Food prices climbed 3.7 percent from a year earlier, non-food prices rose 1.7 percent
  • Consumer goods prices increased 1.9 percent, services rose 2.5 percent

— With assistance by Xiaoqing Pi, Kevin Hamlin, and Miao Han

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