You are here: Home » Reuters » News
Business Standard

China's strong factory gate inflation shows economic momentum still robust

Reuters  |  BEIJING 

(Reuters) - China's producer prices were surprisingly strong in October, while consumer picked up pace in a sign the remains robust, with analysts expecting further price pressure as the government's crackdown on smog hurts factory output.

is already in the second year of a campaign to reduce high levels of debt, keeping liquidity conditions relatively tight as it seeks to flush out speculative financing.

Growth, however, has remained strong this year, thanks to a construction boom that has drive up raw materials prices and in part fed inflationary pressures. Analysts say ramped up rules to bring polluting factories to heel will add to the price pressures.

The producer price index (PPI) rose 6.9 percent in October from a year earlier, despite muted activity during a week-long golden week holiday, data released by the National Bureau of Statistics (NBS) showed on Thursday. It was in line with the growth rate in September when it hit a six-month high.

"The upshot is that price pressures in appear strong on the back of still rapid economic growth, a tight labour market, capacity cuts and temporary disruptions to industrial production," Julian Evans-Pritchard, Economist at Capital Economics, wrote in a note to clients.

"Price pressures may remain strong for a while longer as the anti-pollution campaign keeps commodity prices elevated and this feeds through into core "

Analysts polled by had expected PPI rate would slow to 6.6 percent.

China's consumer inflation, which has stayed well within Beijing's 2017 target of 3 percent this year, also accelerated more than expected to 1.9 percent from 1.6 percent in September, as food prices fell at a slower pace and due to low base effect.

China's robust growth this year, underpinned by a renaissance in long-ailing "smokestack" industries such as steel has surprised financial markets and investors. But property and construction activity, two of the economy's main growth drivers, are starting to slow due to higher borrowing costs and measures to cool a heated housing market.

Some analysts expect monetary policy to tilt towards a tighter bias given the has expanded nearly 6.9 percent in the first nine months of the year, and is on track to comfortably meet the government's 6.5 percent target.

"The rise of momentum seemingly points to further tightening bias in monetary policy," Zhou Hao, an analyst with Commerzbank, wrote in a note.

has maintained a neutral stance on monetary policy this year with a tightening bias, pushing inter-bank short-term lending rates higher which analysts say has added more cost pressure on firms saddled with a pile of debt.

The weighted average lending rate for non-financial firms, a key indicator reflecting corporate funding costs, rose 14 basis points in the second quarter to 5.67 percent, the People's Bank of China's latest quarterly monetary report showed.

ANTI-POLLUTION CAMPAIGN

As northern enters the heating season in November, the has stepped up its fight against smog, ordering many steel mills, smelters and factories to curtail or halt production over the winter.

Analysts also see a risk that producer price pressures recede as the smog war curtails production, meaning cooling demand from factories for raw material inputs.

Tangshan, in northern China's Hebei province, plans to temporarily ban production from a total of 18.21 million tonnes of ironmaking capacity from mid-November until mid-March.

The crackdown on pollution has hurt some firms' output. China's official Purchasing Managers' Index (PMI) and Caixin PMI both showed growth in the country's manufacturing sector cooled in October.

Producer price of raw materials eased only marginally to 9 percent in October compared to 9.1 percent in September, NBS data showed. Industries such as oil and gas mining recorded stronger price gains of 5.1 percent last month.

China's is expected to cool to 6.7 percent from a year earlier in the fourth quarter and will likely grow 6.8 percent in 2017, accelerating for the first time in seven years, a poll showed.

(Reporting by Cheng Fang, Yawen Chen and Ryan Woo; Editing by Sam Holmes & Shri Navaratnam)

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

First Published: Thu, November 09 2017. 10:46 IST
RECOMMENDED FOR YOU