China sees first factory-gate inflation in almost five years

Blomberg.- China’s factory-gate prices rose for the first time since 2012, relieving a source of global disinflationary pressure and indicating further stabilization in the world’s second-largest economy.


Key Points

– Producer-price index rose 0.1 percent in September from a year earlier, compared with a 0.3 percent drop estimated by economists in a Bloomberg survey
– Consumer-price index rose 1.9 percent; analysts had forecast a 1.6 percent increase
– Shares in South Korea and Hong Kong led a regional advance, while the Australian and New Zealand dollars rose

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Big Picture
Years of deflation for China’s factories has abated as global commodity prices recover and domestic demand stabilizes on the back of past stimulus. Given a close link between the country’s factory-gate costs and its export prices, the swing to positive may ease disinflationary pressures in Europe, the U.S. and other big buyers of China’s wares.

Economist Takeaways

“It is a very good sign,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole. “It tells us that the profitability of Chinese companies is likely to continue to increase.”
“The end of PPI deflation is a good signal for the economy’s stabilization,” said Gao Yuwei, a researcher at Bank of China in Beijing. “PPI is expected to be remain expansionary in the coming months.”

Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong, said the pickup in factory prices was driven by gains in coal and copper prices amid a government push to scale back overcapacity. But to keep prices in positive territory, authorities will need to shake up the steel sector next, which will likely prove more difficult, Pang cautioned. “Cleaning up small coal factories is easier than cleaning up steel factories,” she said.

Zhu Qibing, chief macro economy analyst at BOCI International (China) Ltd. in Beijing, said the PBOC should be vigilant on potential inflation, and the room for further easing is limited.

The Details

– Producer prices for mining goods swung to a 2.1 percent increase, manufactured goods added 0.1 percent, while food prices climbed 0.3 percent and clothing increased 0.7 percent
– Non-food consumer prices climbed 1.6 percent and food prices increased 3.2 percent
– Sales of industrial products are recovering and inventories are declining, a senior statistician from the National Bureau of Statistics said.

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