The price of goods at the factory gate rose in China for the first time in more than four years in September, officials said Friday, in a positive sign for demand in the world's second-largest economy. The producer price index (PPI) rose 0.1 percent year-on-year in the month, according to the National Bureau of Statistics (NBS), adding it "ended 54 consecutive months of year-on-year falls".
Chinese firms have for years been battered by falling prices for their goods in the face of chronic overcapacity and weak demand, putting a damper on growth in a key driver of the world economy. Protracted drops in PPI bode ill for industrial prospects and economic growth, as they put off customers - who seek to delay purchases in anticipation of cheaper deals in future - starving companies of business and funds. September's PPI rise "should ease any lingering concerns about deflation," Julian Evans-Pritchard, an analyst with research firm Capital Economics, said in a note.
ANZ economists David Qu and Raymond Yeung said that the turnaround in PPI made further monetary policy loosening unlikely. "The end of deflation basically dismisses the chance of further required reserve ratio and interest rate cuts," they said in a report. NBS analyst Yu Qiumei attributed the PPI increase to strengthening international commodity prices and Beijing's efforts to address industrial overcapacity.
Prices of key imported commodities including iron ore, crude oil, coal and steel performed more strongly in the third quarter compared with the first half of the year, official data showed. Beijing this year vowed to eliminate 100 million to 150 million tonnes of steel capacity by 2020 and cut 500 million tonnes of coal mining capacity within three to five years, as it seeks to restructure lumbering state-owned enterprises.
"The demand-supply imbalance was eased and inventory and sales in key industries showed signs of improvement," Yu said in a statement on the NBS website. September's PPI increase was the first rise since January 2012 and came in ahead of expectations of a 0.3 percent fall in a survey of economists by Bloomberg News.
The consumer price index, a key gauge of retail inflation, rose 1.9 percent, also above expectations of 1.6 percent. Recent indicators have painted a mixed picture of China's economic health. An official measure of manufacturing activity maintained its strongest level in nearly two years in September while auto sales grew at their fastest rate in three years in the world's biggest car market.
But exports sank 10.0 percent year-on-year, suggesting the Asian giant is yet to see the bottom of its years-long growth slowdown. Imports returned to negative territory last month after a brief rise in August, with iron ore and copper volumes dropping, leading analysts to warn that the recent recovery in manufacturing activity could be short-lived. Goldman Sachs analysts said this year's progressive improvement in PPI was primarily to depreciation of China's yuan currency and oil prices recovering.
"We do not think the recent higher CPI and PPI readings should trigger a sharp turn in monetary policy or overall policy stance, as overall inflation remains mild, and the recently higher CPI and PPI readings are partly driven by the low base last year," they said in a note.
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