China’s factory-gate prices tap six-month high

China’s factory-gate prices shot up to a six-month high last month, as food prices dragged on consumer inflation.

China’s consumer prices slowed more than expected last month. PHOTO: ZHENGYI XIE/UPPA/ZUMA PRESS

China’s factory-gate prices shot up to a six-month high last month, the latest surprise for an economy that has defied many economists’ expectations of a slowdown.

China’s producer prices in September rose 6.9 per cent compared with the same period a year ago, according to the government’s statistics bureau. That pace was faster than a 6.3 per cent increase in August and beat the 6.4 per cent forecast by economists.

The result was another indication of the Chinese economy’s resilience. Before the release of Monday’s inflation data, China’s central bank governor Zhou Xiaochuan said over the weekend that the world’s second-largest economy may post 7 per cent growth in the second half of the year, higher than the first-half’s 6.9 per cent.

Driving up the producer-price index were prices for steel and other metals, which have risen in response to infrastructure spending, while Beijing’s campaign to reduce industrial capacity and speculation that market will tighten also contributed to higher prices, said Julian Evans-Pritchard, an economist with Capital Economics.

Meanwhile, the consumer-price index’s growth eased to 1.6 per cent in September, from a 1.8 per cent increase in August, the statistics bureau said. A steep 1.4 per cent fall in food prices pushed down the index, analysts said.

Many economists predicted the economy would lose steam this year after Beijing prioritised reducing debts and cooling the hot-running property market. Rather than slowing, the economy has steadily hummed along, with the tightening by Beijing offset by a recovery in exports, strong government-led infrastructure investment and a resilient real-estate market.

Producer prices have been a sign of the robust economy. After falling for nearly five years, the producer-price index finally began rising in September 2016. Its continued rise has helped lift loss-making industrial companies post double-digit profit growth this year.

“The PPI figure came in surprisingly high in September as commodity prices have started to ease,” said Larry Hu, an economist with Macquarie Securities. Still, he said he doesn’t expect the momentum for the index or the economy to be sustained in the months ahead.

China’s economic growth is expected to slow a notch to 6.8 per cent in the third quarter, according to a poll of economists by The Wall Street Journal. But Mr. Zhou, the central bank governor, said in a speech in Washington that higher growth is expected, driven by household consumption.

Mr Hu from Macquarie Securities said he isn’t revising his forecast based on Mr Zhou’s remarks because tighter government restrictions on home purchases and softening global demand will weigh on China’s economic growth.

September’s 1.6 per cent rise in consumer prices continues months of low inflation. The pace remains well below Beijing’s 3 per cent annual inflation ceiling, giving policy makers ample room to manoeuvre if the economy veers off course.

Dow Jones Newswires