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China's factory inflation slowest in 13 months as war on pollution steps up

| Updated: January 13, 2018 13:38:49


A man collects recyclables from an alley as smoke billows from the chimney of a factory in rural Gaoyi county, known for its ceramics production, near Shijiazhuang, Hebei province, China December 7, 2017. - Reuters file photo A man collects recyclables from an alley as smoke billows from the chimney of a factory in rural Gaoyi county, known for its ceramics production, near Shijiazhuang, Hebei province, China December 7, 2017. - Reuters file photo

China’s producer prices rose at their slowest pace in 13 months in December, as the government’s war against winter smog dented factory demand for raw materials in a sign the world’s second largest economy has started to slow.

The producer price index (PPI) rose 4.9 per cent in December from a year earlier, the slowest growth since November 2016, the National Bureau of Statistics (NBS) said on Wednesday. That was slightly faster than the 4.8 per cent in a Reuters poll of analyst but much weaker than the 5.8 per cent pace seen in November, according to a Reuters report.

The data also showed consumer inflation accelerating less than expected and remaining well within the central bank’s comfort zone.

Analysts say the year-on-year slowdown in producer price inflation was due in part to a high base last year with price gains in raw materials falling from their peaks. It also supports the view that a softening in the economy has started in the last few months.

“Looking ahead, we think that food prices aside, inflation will continue to drop back in the coming quarters as economic activity softens,” Julian Evans-Pritchard, Senior China Economist at Capital Economics, wrote in a note.

The data shows producer price increases slowing for the second month in a row in December, which follows a modest recovery in prices seen in the third quarter of last year.

A government crackdown on smog in the heavily industrialised northern provinces this year has hit demand for raw materials and continued curbs on the housing market have weighed on property investment.

While pollution curbs have had a disinflationary effect on producer prices, the resulting supply disruptions have in some segments added upward pressure to prices.

On a month-on-month basis, the PPI rose 0.8 per cent in December, beating November’s 0.5 per cent increase, due to temporary disruptions caused by the pollution curbs.

The production restrictions at factories have triggered fears of supply shortages, giving a major boost to iron ore and steel futures prices and helping to offset tepid demand during winter months as construction activities slow.

“We’ll have to see whether those price gains will be passed onto consumers in 2018,” said Liu Xuezhi, an analyst with Bank of Communications.

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