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China producer prices pick up, consumer inflation remains mild
Last Updated: 2017-01-11 06:39 | Xinhua
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China's producer price growth beat market expectations in December supported by rising commodity prices and robust demand, while consumer inflation remained mild, the National Bureau of Statistics (NBS) said Tuesday.

The producer price index (PPI), which measures costs for goods at the factory gate, rose 5.5 percent year on year last month, the highest in more than five years, NBS data showed.

The growth rate picked up from 3.3 percent in November and 1.2 percent in October.

Under pressure from a downturn in the broader economy, the PPI had been trapped in negative territory for 54 months before returning to growth in September. Analysts expect the current rising trend to continue in January.

The better-than-expected increase, indicating stronger profits for Chinese companies, came as an encouraging sign for the slowing economy, adding to hopes that China will gain a firm footing in the start of the new year.

Factors including the exchange rate of the Chinese yuan and rising prices of coal and steel led to continuous rises in the PPI, NBS senior statistician Sheng Guoqing said, adding that market demand also saw steady recovery thanks to the ongoing industrial overhaul.

The PPI for the whole year dropped 1.4 percent, recovering from a 5.2-percent decline in 2015.

Meanwhile, China's consumer inflation remained tame last month, while reporting faster full-year growth.

The consumer price index (CPI), a main gauge of inflation, increased 2.1 percent from a year ago, slightly down from November's 2.3-percent rise. For the whole of 2016, the CPI rose 2 percent, well below the government's 3-percent annual target.

The country's consumer price growth stood at 1.4 percent in 2015 and 2 percent in 2014.

Sheng attributed December's slowdown to a higher base for comparison in the same period of 2015 and weak price increases in vegetables and fruit.

"The inflation data show China's economy ending 2016 on a strong note," Bloomberg economist Tom Orlik said, "Consumer price gains edged down, but an increase in the non-food index pointed to resilient demand. Producer prices rose again, moving further out of deflationary territory."

But the inflation data, especially surging PPI, also stoked concerns over risks of stagnation, and increased expectation of tightening measures from the central bank, including interest rate hikes.

Steven Zhang, an economist with Morgan Stanley Huaxin Securities, dismissed those concerns.

"China did stress 'neutral' in its prudent monetary policy, but under the aim of preventing asset bubbles and reducing financial risks ... it is unnecessary to adopt extra measures like rate hikes," Zhang said.

Echoing his words, Orlik said the influence on the government's monetary policy will be limited as higher PPI readings have yet to have much impact on consumer products.

Orlik predicts that CPI inflation will continue to edge down over the course of the first quarter as soaring food prices drove the index higher in the same period of 2016.

The People's Bank of China said monetary policy will be kept prudent and neutral in 2017, with better adjustments to ensure stable liquidity, according to the bank's annual work conference.

Besides the inflation data, China is scheduled to disclose an array of other major economic indicators for 2016, including GDP, industrial output, investment, home sales and M2, as well as exports and imports.

Buoyed by increased government spending on infrastructure and booming home market, the economy held steady against rising headwinds, with GDP expanding stably at 6.7 percent in each of the first three quarters of the year.

Xu Shaoshi, director of the National Development and Reform Commission, the top economic planner, said Tuesday during a press briefing that he estimated that the economy would keep the same growth rate for the full year, propped up by strong consumption.

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