China's Dec producer prices accelerate at fastest pace in over 5 years

[BEIJING] China's producer prices surged past expectations to more than five-year highs in December as prices of coal and other raw materials soared, while consumer inflation remained subdued.

The pick-up in prices reinforces views that the world's second-largest economy continues to show signs of stabilisation, underpinned by stronger factory activity and domestic demand which is being fuelled by a lending and building boom.

The producer price index (PPI) jumped 5.5 per cent in December from a year earlier, the most since Sept 2011, compared with a 3.3 per cent increase in November, the National Statistics Bureau said on Tuesday.

Analysts had expected a 4.5 per cent gain, a Reuters poll showed.

Raw materials and mining continued to show the fastest gains.

The statistics bureau said volatility in exchange rates was one reason for the increase in producer prices, as commodity imports became more expensive.

The yuan weakened 6.5 per cent against the US dollar last year, its worst performance since 1994.

Consumer inflation rose 2.1 per cent on-year, missing expectations, as food prices rose at a more modest pace.

Accelerating prices in the Chinese economy are also contributing to stronger global inflation expectations in 2017.

For the first time in nearly five years, economists at HSBC have raised their forecast for global growth and inflation over the next two years based on robust manufacturing activity, a resilient China and above all the fiscal boost expected to come in the United States under incoming President Donald Trump.

The sustained producer price jump has not yet started filtering into consumer prices, suggesting the People's Bank of China will not be under immediate pressure to tighten monetary policy, analysts say.

But policy insiders already expect a tilt towards more conservative monetary policy this year as top leaders struggle to strike a balance between supporting the economy with ample credit and preventing a destabilising build-up in debt.

The PBOC reaffirmed it would keep liquidity in the financial system stable while taking steps to prevent asset bubbles and financial risks in its annual work meeting for 2017.

The government think tank, the China Academy of Social Sciences (Cass), forecast that the country's CPI would grow 2.2 per cent in 2017 and PPI would rise 1.6 per cent for the year.

For 2016, CPI rose 2 per cent while PPI slid 1.4 per cent.

China's producer prices turned positive in September on an annual basis for the first time in nearly five years, helped by a rebound in commodity prices.

REUTERS