China factory prices surge most since 2011, boosting reflation

Bloomberg

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 percent in January from a year earlier, compared with a median estimate of 6.5 percent in a Bloomberg survey and a 5.5 percent December gain. Consumer-price index climbed 2.5 percent, boosted by the week-long Lunar New Year holiday beginning in January this year, versus a 2.4 percent rise forecast by analysts. Producer prices for mining products surged 31 percent year-on-year while those for raw materials climbed 12.9 percent, 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.”
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.” The rise of the PPI can be attributed to sectors including oil and gas extraction, coal mining and steel production, the NBS said in a statement.