China Oct fac­tory prices rise more than fore­cast Con­sumer prices also pick up

Kuwait Times - - BUSINESS -

China’s pro­ducer prices jumped more than ex­pected in Oc­to­ber as prices of coal and other raw ma­te­ri­als surge in the midst of a sup­ply crunch and a pickup in the econ­omy. Con­sumer prices also beat ex­pec­ta­tions, ac­cel­er­at­ing to a six­month high, though an­a­lysts say the room for fur­ther rises is limited.

“We think pro­ducer price inflation will re­cover fur­ther in com­ing quar­ters but will top out at a lit­tle over 4 per­cent y/y be­fore drop­ping back again,” Cap­i­tal Eco­nom­ics econ­o­mist Ju­lian Evans-Pritchard said in a note. “The scope for fur­ther rises in con­sumer price inflation is likely be more limited given that credit growth has be­gun to slow, house prices are start­ing to cool and farm­ers have re­sponded to high pork prices by boost­ing pig sup­ply.”

With pro­ducer prices pulling out of nearly five years of de­fla­tion and the econ­omy show­ing broad signs of sta­bi­liza­tion, pres­sure on Bei­jing to sup­port growth has eased, with the pol­icy fo­cus now on con­trol­ling as­set bub­bles and other risks.

Fac­tory prices rose 1.2 per­cent onyear, the fastest pace since De­cem­ber 2011, af­ter turn­ing marginally pos­i­tive in Septem­ber for the first time in nearly five years, the Na­tional Bureau of Sta­tis­tics (NBS) said yes­ter­day. The read­ing hand­ily beat fore­casts for a 0.8 per­cent rise, with the in­crease led by higher prices for com­pa­nies in­volved in the pro­duc­tion and pro­cess­ing of raw ma­te­ri­als.

On a month-on-month ba­sis, pro­ducer prices rose 0.7 per­cent. Coal prices in China are in the midst of a month’s long rally, with prices hitting fresh records on an al­most daily ba­sis in re­cent weeks af­ter gov­ern­menten­forced clo­sures tight­ened sup­plies for util­i­ties, trig­ger­ing a scram­ble for raw ma­te­ri­als ahead of the win­ter. Stronger fac­tory prices have helped boost in­dus­trial prof­its, re­liev­ing some pres­sure on com­pa­nies squeezed by higher costs and weak de­mand, though there are con­cerns some of the gains are due to spec­u­la­tion and are not sus­tain­able.

Im­proved cash flows should also give com­pa­nies more room to ser­vice heavy debt loads, a key con­cern for the govern­ment. Cor­po­rate China sits on $18 tril­lion in debt, equiv­a­lent to about 169 per­cent of gross do­mes­tic prod­uct (GDP), ac­cord­ing to the most re­cent fig­ures from the Bank for In­ter­na­tional Set­tle­ments. Most of it is held by state-owned com­pa­nies.

CON­SUMER PRICES PICK UP

China’s con­sumer prices also rose in Oc­to­ber, in­creas­ing at the fastest pace since April as food prices picked up. The con­sumer price in­dex (CPI) rose 2.1 per­cent in Oc­to­ber from a year ear­lier, com­pared with a 1.9 per­cent in­crease in Septem­ber.

An­a­lysts had ex­pected a 2.1 per­cent gain. A jump in food prices fu­eled faster con­sumer inflation. Food prices rose 3.7 per­cent, com­pared with a 3.2 per­cent gain in the pre­vi­ous month. Non-food prices inched up 1.7 per­cent ver­sus Septem­ber’s 1.6 per­cent gain.

On a monthly ba­sis, con­sumer prices fell 0.1 per­cent. Prices for health care rose 4.8 per­cent, the fastest-ris­ing CPI sub-cat­e­gory.

China’s pro­ducer price in­dex is ex­pected to con­tinue to in­crease yearon-year in the com­ing months, sta­tis­tics bureau spokesman Sheng Laiyun said in late Oc­to­ber. “I be­lieve PPI in the com­ing months will con­tinue to show pos­i­tive growth year-on-year, but it could be volatile month-on­month,” Sheng told a group of for­eign re­porters.

Fac­tory ac­tiv­ity in­creased at the fastest pace in over two years in Oc­to­ber, China’s of­fi­cial pur­chas­ing man­ager sur­vey showed last week. The re­bound in pric­ing power may be reach­ing its limits, how­ever, as prices of some ma­te­ri­als surge to multi-year highs and a prop­erty boom shows signs of peak­ing. China’s main com­mod­ity ex­changes have even launched a se­ries of fee hikes and mar­gin in­creases for some of their most volatile, niche con­tracts from coke to glass as au­thor­i­ties cracked down on spec­u­la­tion that is fu­elling a surge in prices.

Data from in­dus­try con­sul­tancy Cus­teel.com suggested steel mills have been cut­ting out­put and even start­ing main­te­nance work ear­lier than usual as soar­ing costs for raw ma­te­ri­als such as iron ore and cok­ing coal squeeze prof­its.

Data on Tues­day showed China’s im­ports of iron ore, crude oil, coal and copper all fell in Oc­to­ber. China’s econ­omy ex­panded at a steady 6.7 per­cent in the third quar­ter and looks set to hit Bei­jing’s ful­lyear tar­get, fu­eled by stronger govern­ment spend­ing, record bank lend­ing and a red-hot prop­erty mar­ket that are adding to its grow­ing pile of debt. —Reuters

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