JAKARTA - China has announced its producer price index (PPI) in September. Followings are the key points:
Key Points:
- China’s producer price index (PPI) rose 0.1% year on year (y/y) in September, the first y/y rise in 56-months. The improvement was entirely due to a 5.3 percentage point acceleration in mining PPI, which grew 2.1%. Raw materials and manufacturing of industrial means of production (e.g. machinery) enjoyed more modest improvements. Consumer goods manufacturing PPI remained stagnant for the third consecutive month; within that food PPI grew slightly faster, while clothing, daily use goods and durable goods decelerated.
- China’s consumer price index (CPI) rose 1.9% in September, compared to 1.3% in August. The improvement was led by food prices accelerating to 3.2% growth, although most categories of CPI enjoyed modest improvements in price growth, including broadly across all consumer goods and services, and across urban and rural areas. Clothing and household facilities and services were the two exceptions, growing at a marginally lower pace than in August.
- Month-on-month (m/m) momentum similarly improved in both categories. PPI grew 0.5% m/m, a four-month high, while CPI grew 0.7% m/m, a seven-month high. In both cases, the rise remained most closely tied to mining and food prices.
IHS Global Insight Views:
Producer prices will continue to rise, pulling profits up with them. Rising factory gate prices will further bolster industrial profit growth, which is already in excess of 8% due to the metals and mining sectors. Chinese PPI is expected to further accelerate into the low single digits in 2017, although will moderate afterwards as a portion of this growth will be due to the especially low base in 2015 and 2016. Notably, this price improvement will be especially concentrated in the mining sector, which only accounts for 4% of industrial output in China today, about half the share from five years ago.
Decent consumer price growth reduces the already low probability of monetary easing. CPI is currently well above 2015 rates and improving, and not only the volatile food category. While concerns of an overheated housing market already all but eliminated the chances of monetary policy easing in the remainder of 2016, decent CPI readings further cement that expectation. (*)
By Brian Jackson, China Economist, IHS Global Insight