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China Factory Inflation Slows Down From 26-Year High

Published 09/12/2021, 04:30
Updated 09/12/2021, 04:30
© Reuters.

© Reuters.

By Doris Yu

Investing.com – China’s factory inflation slowed down slightly in November from a 26-year high, helped by a government crackdown on runaway commodity prices and an easing power crunch.

National Bureau of Statistics (NBS) data released earlier in the day showed that the consumer price index (CPI) grew 2.3% year-on-year, lower than the 2.5% growth in forecasts prepared by Investing.com but higher than October’s 1.5% growth. The CPI grew 0.4% month-on-month in November, higher than the 0.3% growth in forecasts prepared by Investing.com but lower than the previous month’s 0.7% growth.

Recent government policies to rein in sharply rising energy and raw materials prices are taking effect, NBS senior statistician Dong Lijuan said in a statement accompanying the data release. These include setting an immediate ex-mine price target and ordering rapid production to cool high prices, which has been effective in easing a power shortage expected this winter.

Factory inflation remained high, however. The producer price index (PPI) grew 12.9% year on year, higher than the 12.4% growth in forecasts prepared by Investing.com but lower than October's 13.5% growth.

While PPI has likely peaked, the rate at which it will slow down is highly uncertain, according to Commerzbank (DE:CBKG) senior EM economist Zhou Hao.

However, consumer inflation remained modest as restrictive COVID-19 measures impeded consumption and demand. Vegetable prices jumped 30.6% while pork prices dropped 32.7%, which sped up consumer inflation.

"Food aside, price pressures are generally easing, especially in heavy industry," Capital Economics senior China economist Julian Evans-Pritchard said in a note.

"As such, we don’t think inflation concerns will hold back the People’s Bank of China (PBOC) from further loosening measures including policy rate cuts."

On Monday, the PBOC said it will reduce most banks’ reserve requirement ratio by 0.5 percentage points from next week.

The country’s top leaders also signaled that they would focus on stabilizing macroeconomic conditions for 2022. They also hinted that the country will ease some property curbs in the next year.

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