Chinese factory gate prices are in constant rising for the first time since 2012, Beijing said on December 9th, fuelling hopes that the world’s factory can export inflation into a lacklustre global economy. The forecast-beating figures mark an acceleration from the previous two months after more than four years of plunging prices as the world’s number-two economy stabilises. They also come a day after data showing a surprise rise in foreign trade and have led to suggestions the central bank should lifting interest rates.
The producer price index rose 3.3 per cent year-on-year last month. The consumer price index, a key gauge of retail inflation, rose 2.3 per cent, slightly beating expectations of 2.2 per cent. “China has entered a new inflationary cycle,” said Raymond Yeung at Australia & New Zealand Banking Group in Hong Kong. “The next move of the (People’s Bank of China) should be an interest rate hike, not a cut.” China is the world’s biggest trader in goods, and its performance affects partners from Australia to Zambia, many of which have been mired in tepid inflation for years, which has in turn caused a drag on the global economy.
Chinese firms have been battered by falling prices for their goods in the face of chronic overcapacity and weak demand, putting a damper on growth in the country. The economy expanded last year at its slowest rate in a quarter of a century as Beijing strives to effect a difficult transition from reliance on exports and state investment to an economy driven by consumers.
The fact that Chinese factory Gate prices are in constant rising is a bad sign for industrial prospects and economic growth because they put off customers
–Who seek to delay purchases in anticipation of cheaper deals in the future
–Starving companies of business and funds. ANZ analysts said the figures showed China had pulled out of a years-long period of deflation thanks to rising commodity prices, and predicted that the factory
-Gate prices would continue to edge up next year. The country is “now a source of global inflationary pressure”, Julian Evans-Pritchard of Capital Economics. Loose credit and ample stimulus have stoked domestic demand, driving price increases in property and industrial commodities, he noted.
The CPI rise was driven largely by an increase in prices for fresh vegetables, statisticians said, due in part to costs associated with greenhouse growing and a nationwide cold snap. On Thursday the government said exports rose in November, snapping a seven-month losing streak, thanks partially to a plunging yuan.