China’s CPI, PPI Jumps to Beat Expectations

China's consumer price index met expectations, while producer price index crushed analysts expectations.

China’s consumer price index met expectations, while producer price index crushed analysts expectations.

China’s consumer price index surged 1.6 percent and met expectations in September compared with the same period last year, according to the data released by the National Bureau of Statistics on Monday.

Additionally, the producer price index sped up and skyrocketed in September, beating expectations with its 6.9 percent jump, as the construction boom apparently is not decelerating any time soon. Meanwhile, the government’s crackdown on air pollution triggers fears of winter shortages and drastic jumps in commodity prices.

A year ago, the producer price index was projected to rise only 6.3 percent in September, while China’s consumer price index was predicted to rise 1.6 percent.

The Asian giant’s strong demand for construction materials has activated a year-long commodities rally, helping to maintain manufacturing activity and inflation all over the globe. However, it still has to trickle down to the consumer level.

Coming from a faster-than-expected 6.9 percent growth in the first half, its economy is anticipated to swell 7 percent during the second half of this year, according to China’s central bank governor. This opposes economists’ projection of a slowdown.

Tony Boyadjian, senior vice president of foreign exchange at Compass Global Market, said that the strong producer price index that indicates higher factory gate prices may help overseas markets as the East Asian economy grows, which means a higher demand for raw materials.

“What this means is that we could see a little bit more of imported inflation pressure elsewhere,” said Boyadjian.

The gains in the producer price index, which is its strongest since March of this year, also indicates China’s continued resilience in economy and industrial sector profits. This is expected to be good news when it comes to the Communist Party leaders two days ahead of a once-every-five-years congress.

The world’s second largest economy’s commodity futures have intensely fluctuated in recent weeks as the government pushes for its biggest environmental crackdown, aiming to heavily diminish the thick winter smog blanketing its major cities. Environmental inspections disrupted some supply lines, and thus increased the uncertainty felt in the Chinese market.

A number of steel mills, smelters, and coal companies have raised up production levels ahead of the expected curbs on output or outright shutdowns in the coming months.

Shanghai steel futures rose almost 7 percent on Friday, well resonant of a similar rally in raw materials iron ore and coking coal.

In September, iron ore and coking coal’s prices had sharply slipped due to fears of weakened demand for raw materials. However, traders are at a lost when it comes to the ways the winter supply and demand picture will play out, while they also feel unsure on how the global commodity markets will be affected by it.

Tangshan, a top steel making city, was the latest to enforce production this month, falling ahead of the November 15 deadline, when the Chinese people usually switch on their winter heating systems.

On the other hand, analysts still predict a slowdown in the fourth quarter, caused by a high base of comparison last year and as overall demand moderates following the economic growth.

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