Monday, April 22

Inflation rises high as China eyes tighter policy

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BEIJING: China’s producer price inflation picked up more than expected in January to near six-year highs as prices of steel and other raw materials extended a torrid rally, adding to views that global manufacturing activity is building momentum.

China consumer inflation also rose more than expected, nearing a three-year high as fuel and food prices jumped, data showed on Tuesday.

Much of the pick up in consumer prices was likely due to higher food and travel costs heading into the long Lunar New Year holiday, the National Bureau of Statistics (NBS) said.

But mounting price pressures in China and many other countries have sparked talk of tighter monetary policy this year, after years of super-loose settings aimed at reviving economic growth.

China’s central bank raised short-term interest rates in recent weeks as it looks to contain risks from an explosive growth in debt, while India’s central bank last week unexpectedly signalled an end to its longest easing cycle since the global financial crisis, citing inflation risks.

Some analysts, however, believe the ramp up in price pressures in China may be short-lived, noting that a jump in January food prices was likely seasonal and that producer price gains slowed by half on a month-on-month basis.

“We don’t expect such high rates of inflation to last,” Capital Economics China economist Julian Evans-Pritchard said in a note.

“Tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term,” he added, noting that weak prices early last year may have exaggerated the strength of a reflationary trend seen in recent months.

Consumer inflation quickened to 2.5 per cent in January from a year earlier, the highest since May 2014.

But it is still well within the government’s comfort zone of 3 per cent, and is showing few signs yet that the jump in producer prices is filtering through to the broader economy, analysts say.

Analysts polled by Reuters had predicted the consumer price index (CPI) would rise 2.4 per cent, after a 2.1 per cent gain in December.

Food prices, the biggest component of CPI, rose 2.7 per cent in January, led by a 7.1 per cent increase in the price of pork.

Fuel costs surged 16.5 per cent on-year, the biggest increase among CPI components, likely due to a low comparison in the year-ago period when fuel prices fell.

Capital Economics expects consumer prices to rise only 2.0 per cent this year.

Producer price inflation accelerated to 6.9 per cent – the fastest since August 2011 – from December’s rise of 5.5 per cent.

Gains in the producer price index (PPI) were driven by a 31.0 per cent increase in mining costs as coal prices rise, the biggest jump in that category since early 2010.

The market had expected producer prices to rise 6.3 per cent on an annual basis.

But on a monthly basis, they only rose 0.8 per cent, down from December’s 1.6 per cent gain.

China’s massive imports of coal, crude oil, iron ore and industrial materials have helped fuel a sharp rebound in global resources prices in recent months, boosting profits for producers and processors. — Reuters