China’s Dec. producer prices rise 5.5%, fastest since 2011

Reuters BEIJING (Reuters) — China’s producer prices surged the most in more than five years in December and by more than expected as prices of coal and other raw materials soared, adding to expectations that global inflation may be stronger in 2017.

The pickup in prices reinforces views that the world’s second-largest economy is on steadier footing into the new year, underpinned by stronger factory activity and domestic demand, which is being driven by a lending and construction boom.

But some analysts worry the strong gains in producer prices may also be fueled by growing speculation in commodities futures markets, adding to the broader risk of bubbles in China’s economy even as leaders attempt to control explosive growth in debt.

“I don’t think there’s an inflation issue in China, it’s an asset bubble,” said Commerzbank senior emerging market economist Zhou Hao in Singapore.

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

That is boosting profits for China’s heavily indebted smokestack industries, which are largely state owned, and generating more cash flow to help pay off their loans.

Analysts had expected a 4.5 percent gain, a Reuters poll showed.

Reflecting surging demand for building supplies and coal for both heating and steelmaking, and government-mandated cuts in excess industrial capacity, raw materials and mining prices continued to show the fastest gains, rising 9.8 percent and 21.1 percent, respectively.

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 percent against the dollar last year, its worst performance since 1994.

Consumer inflation rose 2.1 percent on-year, missing expectations, as food prices rose at a more modest 2.4 percent pace.

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.

Hopes of stronger spending under Trump are sparking expectations of stronger U.S. economic growth and inflation with more interest rate hikes from the Federal Reserve.Speech

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