China’s Prolonged Industrial Deflation Finally Ends As Demand Grows For Coal, Steel

14 October 2016

Factory gate prices unexpectedly rose in September – ending a period of industrial deflation that had lasted for 54 months as demand for industrial goods, including coal and steel, recovered in the world’s second biggest economy, official data showed on Friday.

A rise in industrial prices will make it less likely for China’s central bank to loosen its policy stance.


Factory gate prices refer to the cost of finished goods that are sold by manufacturers and distributors.

The producer price index, or PPI, increased 0.1 per cent in September from the same month a year earlier after a fall of 0.8 per cent in August and a decrease of 1.7 per cent in July, the National Bureau of Statistics said.

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The PPI has declined since 2012, with deflation worsening in late 2014 and 2015 before showing signs of an improvement this year.

Consumer inflation rise picked up to 1.9 per cent in September, when compared with 1.3 per cent in August.

As consumer inflation comfortably remains within the 3 per cent annual target, market watchers have focused more on industrial prices to gauge the state of the economy as the changes are relevant to industrial ?rms’ pro?tability and accordingly affect their investment demand.

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The PPI’s return to positive territory was helped by “exchange rate and oil prices, as well as favourable base effect,” said Goldman Sachs in a research note issued ahead of the release of the data.

The bank said it did not expect that any PPI pick-up would put much upward pressure on consumer inflation.

Premier Li Keqiang said on Tuesday that China’s third-quarter economic performance was better than expected with the number of new jobs reaching the target for the entire year, which boosted expectations of a flurry of third-quarter data indicating a firmer footing of economy.

Yet trade data proved disappointing on Thursday.


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