Commodities push PPI up

By Li Xuanmin Source:Global Times Published: 2016/10/15 0:18:39

Overcapacity issue to drag sustained recovery


China's producer price index (PPI) rose in September for the first time in nearly five years, led by a recovery in demand and the recent rebound of commodity prices, experts noted on Friday.

But the figure doesn't necessarily herald an uptick in domestic economy, as China is still confronted with overcapacity in the manufacturing sector, experts warned.

China's consumer price index (CPI), the main gauge of inflation, grew 1.9 percent year-on-year in September, up from the 1.3 percent rise in August, while PPI gained 0.1 percent year-on-year, the first increase since March 2012, according to a statement released by the National Bureau of Statistics on Friday.

"The Chinese government has rolled out measures to stimulate domestic demand in the infrastructure sector," Liu Xuezhi, an analyst at Bank of Communication, told the Global Times on Friday, noting that the recent boom in housing market has also lifted demand in sectors related to construction such as steel and coal.

The prices of ferrous metals, non-ferrous metals and coal combined saw an increase of 4.1 percent year-on-year, according to the statistics bureau.

 "The increase in CPI is largely due to weather factors in the second half of 2016 such as flooding, which pushed up the food price," Liu noted.

The stronger-than-expected inflation data and the return of the PPI to positive territory is a boon for China's economy which is facing mounting corporate debt, and also a sign that the economy is on track for recovery after months of downturns, Bai Ming, a researcher with a think tank under the Ministry of Commerce, told the Global Times on Friday.

"Higher prices for industrial products will provide defaulted Chinese companies with more revenue channels, and the outlook for Chinese industrial profits is improving," Bai said, noting that the figure also shows China's supply-side reform has achieved positive results.

Currently, Chinese companies are sitting on a debt of $18 trillion, equivalent to about 169 percent of GDP, Reuters reported on Friday.

Despite a promising future, experts forecasted that the PPI will only enjoy a small growth in the following months, due to the country's overcapacity issue.

"China's economy is still plagued by overcapacity, especially in the manufacturing sector, despite progress in capacity cuts in the steel and coal sectors," which leaves little room for further price hikes, Liu said.

Moreover, the country's economy is transitioning from a focus on secondary industry like manufacturing to tertiary industry, and that will curb a sustained growth of PPI in the near future, experts said.



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