Inflation in China is heating up fast

Photo by China Photos/Getty Images

Chinese inflationary pressures went up a cog in January, led by another enormous surge in producer price inflation (PPI).

According to China’s National Bureau of Statistics (NBS), PPI jumped by 6.9% from a year earlier, the largest annual increase reported since August 2011.

It was well above the 6.3% increase expected, and followed a 5.5% lift in the year to December.

For the month, producer prices increased by 0.8%.

A hot reading, and largely reflective of higher input costs as a result of booming commodity prices.

The NBS said costs for mining extraction surged by 31% from a year earlier, while those for raw materials increased by 12.9%. They previously rose by 21.1% and 9.8% respectively in the 12 months to December.

And with factory gate prices on the rise, there’s signs that those upstream price pressures are now being passed on to consumers.

The NBS said consumer price inflation rose by 2.5% from a year earlier, a figure that was higher than the 2.1% increase of December and market expectations for an acceleration to 2.4%.

It was the fastest increase since May 2014, with prices for both food and non-food items growing at a faster pace than December

Food inflation rose by 2.7% over the year, up from 2.4% in the previous month, while non-food prices jumped by 2.5%, again above the 2.0% level reported previously.

It’s the gain the latter that’s of most interest, indicating that inflationary pressures are now clearly accelerating throughout the broader Chinese economy, an outcome one would expect given easy monetary conditions and a clear pickup in economic activity seen in 2016.

Non-food inflation is now rising at the fastest pace in years.

In January alone, food prices increased by 2.3%, led by a 3.4% jump in pork prices, a staple of the Chinese diet. The increase reflects the timing of the Lunar New Holiday which began in the final week of January.

Non-food inflation increased by a smaller 0.7% over the same period, building upon the 0.2% lift seen in December. It was the largest monthly increase in over a year.

Combined, CPI rose by 1% over the month.

Despite the acceleration in both producer and consumer price inflation in January, Larry Hu, head of China economics at Macquarie Securities in Hong Kong, doesn’t think that it will be enough to see the People’s Bank of China (PBoC) tighten monetary policy settings in the near-term.

“There will be a mild reflation throughout this year,” he said in an interview with Bloomberg. “Although the PPI may keep rising in the first quarter, this is a relatively healthy inflation, and it probably won’t affect the policy stance of the PBoC, which now is clearly focused on cutting financial leverage.”

Following the release of the inflation report, Chinese stocks have fallen into the red while commodities futures have trimmed their earlier session gains.

The benchmark Shanghai Composite stock index currently trades at 3,210.9, down 0.18%

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