China Feb producer inflation fastest in almost 9 years as commodities surge

Xavier Trudeau
Mars 19, 2017

China's producer price index (PPI), which measures costs of goods at the factory gate, rose 7.8 percent year on year in February, increasing from 6.9 percent in January.

China's consumer inflation remains well within the central bank's comfort zone, but expectations of eventual upward pressure could keep the central bank on a gradual tightening path.

Consumer inflation, however, cooled more than expected to its slowest pace since January 2015, leaving some analysts puzzled about the strength of the broader economy.

The NBS attributed the weakening CPI to sharply lowering food prices, which fell 4.3 percent in February.

But many analysts believe China's producer inflation may peak soon, and do not expect much of a flowthrough into China's consumer inflation data, which unlike some other large economies is mainly driven by prices of food and services.

"Although February's CPI slowdown was relatively large, CPI is still relatively steady when food and energy prices are taken out of the equation", statistician Sheng Guoqing said.

Analysts polled by Reuters had predicted the consumer price index (CPI) would rise 1.7 percent, compared with 2.5 percent the prior month.

China has cut its economic growth target to a more modest 6.5 percent this year to give policymakers more room to push through painful reforms to address a rapid build-up in debt. The index is likely to fall as capacity reduction continues.

Higher PPI signifies recovering investment and export demand and notable improvement in industrial profitability, including the profit margin of mid- to downstream industries, it said.

Meanwhile, the economy has expanded steadily, raising optimism that China is entering a period of slower but more predictable growth.

The total social financing credit growth target has also been set at 12 percent, implying slower credit growth than past year and a slight tightening bias, she said, adding no benchmark rate hike is expected and predicting only a gradual tightening of asset management regulations.

Other reports by CampDesrEcrues

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