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China's factory inflation slowest in 13 months as war on pollution steps up

Reuters  |  BEIJING 

By Stella and Elias Glenn

(Reuters) - China's prices rose at their slowest pace in 13 months in December, as the government's war against winter smog dented factory demand for raw materials in a sign the world's second largest has started to slow.

The price index (PPI) rose 4.9 percent in December from a year earlier, the slowest growth since November 2016, the (NBS) said on Wednesday. That was slightly faster than the 4.8 percent in a poll of but much weaker than the 5.8 percent pace seen in November.

The data also showed consumer accelerating less than expected and remaining well within the central bank's comfort zone.

Analysts say the year-on-year slowdown in price was due in part to a high base last year with price gains in raw materials falling from their peaks. It also supports the view that a softening in the has started in the last few months.

"Looking ahead, we think that aside, will continue to drop back in the coming quarters as economic activity softens," Julian Evans-Pritchard, Senior at Capital Economics, wrote in a note.

The data shows price increases slowing for the second month in a row in December, which follows a modest recovery in prices seen in the third quarter of last year.

A crackdown on smog in the heavily industrialised northern provinces this year has hit demand for raw materials and continued curbs on the housing market have weighed on property investment.

While pollution curbs have had a disinflationary effect on prices, the resulting supply disruptions have in some segments added upward pressure to prices.

On a month-on-month basis, the rose 0.8 percent in December, beating November's 0.5 percent increase, due to temporary disruptions caused by the pollution curbs.

The production restrictions at factories have triggered fears of supply shortages, giving a major boost to iron ore and and helping to offset tepid demand during winter months as construction activities slow.

"We'll have to see whether those price gains will be passed onto consumers in 2018," said Liu Xuezhi, an with of Communications.

Raw material prices rose 8.1 percent in December year-on-year, slowing from the 9.7 percent increase in November, data from the statistics bureau showed.

China's industrial firms reported seven-month low earnings for November as demand and price gains eased, adding more pressure on companies saddled with debt.

In December, consumer accelerated less than expected to 1.8 percent from a year earlier versus 1.7 percent in November. The consumer price index (CPI) had been expected to edge up to 1.9 percent.

The declined 0.4 percent in December after falling 1.1 percent in November. Non-rose 2.4 percent, compared with 2.5 percent in November.

Core inflation, which strips out and energy prices, slowed to 2.2 percent from 2.3 percent a month earlier.

For 2017, CPI rose 1.6 percent, well within Beijing's annual target of 3 percent, while surged 6.3 percent, ending a falling streak over the past five years.

"It's unlikely that CPI this year will surpass the government's comfort zone of 3 percent. I expect the central will stay put, under no pressure of resorting to monetary policy to contain modest inflation," of Communications' Liu said.

China's is expected to have posted growth of 6.8 percent in 2017, up slightly from the previous year, supported by a construction boom and robust exports.

(Additional reporting by in Beijing; Editing by Sam Holmes)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, January 10 2018. 10:24 IST