China economy

China factory prices surge most since 2008, boosting reflation

Some economists say strong numbers are not sustainable

PUBLISHED : Thursday, 09 March, 2017, 12:00pm
UPDATED : Thursday, 09 March, 2017, 10:07pm

China’s producer prices have surged at their fastest pace since 2008, further lifting the outlook for global reflation.

The producer price index rose 7.8 per cent last month from a year earlier, compared with the median estimate of 7.7 per cent in a Bloomberg survey and a 6.9 per cent in January. Factory prices only swung out of 4 1/2 years of deflation in September. The consumer price index rose 0.8 per cent rather than the 1.7 per cent increase forecast by analysts, as the timing of Lunar New Year holidays skewed the reading.

China is lifting its global price outlook as producer inflation climbs and a pickup in demand fuels commodity prices. Still, economists see such forces moderating as year-earlier comparisons begin to rise and policy curbs restrain the property market. The CPI data was distorted by the week-long Lunar New Year holiday, which started in February last year, driving up food prices as families prepared for gatherings, whereas it fell in late January this year, when CPI climbed to a 2 1/2 year high of 2.5 per cent.

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It’s a “strange reflation of the Chinese economy”, said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. It helps “corporations by allowing them to push up prices and generate the needed revenues to cover their very high debt burden”.

“Why didn’t skyrocketing PPI translate into higher CPI? Because there is no recovery in demand yet,” Zhou Hao, an economist at Commerzbank AG in Singapore, said in an e-mail. He said China’s PPI may have already peaked.

“Everything has peaked in the first quarter – nominal GDP growth, corporate earnings, PPI inflation,” said Larry Hu, head of China economics at Macquarie Securities in Hong Kong. “The strong numbers we are seeing now are not sustainable.”