China factory prices roar back; deflation ebbs

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    A worker wearing a face mask on a production line manufacturing bicycle steel rim at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province. (Reuters Photo)

    BEIJING- China’s factory gate prices rose at the fastest pace since November 2018 in February as manufacturers raced to fill export orders, raising expectations for robust growth in the world’s second-largest economy in 2021.

    The producer price index (PPI) rose 1.7 percent from a year earlier, National Bureau of Statistics data showed on Wednesday, compared with the median forecast for a 1.5 percent rise from a Reuters poll of analysts and speeding up from a 0.3 percent pickup in January.

    The price data, in part driven by a low base a year earlier, was slightly firmer than expected.

    China’s exports in February grew at a record 154.9 percent in dollar terms from a year earlier, when the country was in virtual shutdown during the height of the COVID-19 pandemic.

    As producer prices extended their gains, consumer inflation remained downbeat, suggesting continued subdued household demand, a lagging driver of broader economic growth.

    The consumer price index fell 0.2 percent in February from a year earlier, the statistics bureau said in a separate statement, compared with a 0.4 percent fall tipped by a Reuters poll and a 0.3 percent decline in January.

    “We do not think the recent period of consumer price deflation is likely to persist. Shifting pork price base effects will nudge up food inflation, a tightening labor market will push up core inflation and energy inflation will rebound thanks to rising oil prices,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note.

    “Given that officials have signaled a hawkish tilt in recent weeks, we think the People’s Bank of China will tighten policy this year,” he said.

    Still, the government last week set a comparatively modest CPI target of around 3 percent this year. Last year, consumer prices rose 2.5 percent, undershooting Beijing’s goal of about 3.5 percent.

    Beijing also set an economic growth target of above 6 percent for 2021, below analyst expectations for an expansion of more than 8 percent. China’s gross domestic product rose 2.3 percent in 2020, its weakest growth in 44 years but stronger than its global peers. – Reuters