China’s producer prices increased the most since 2011, with the world’s biggest exporter further lifting the outlook for global inflation.

Key Points

• Producer price index rose 6.9 percent in January from a year earlier, compared with a median estimate of 6.5 percent in a Bloomberg survey and a 5.5 percent December gain
• Consumer-price index climbed 2.5 percent, boosted by the week-long Lunar New Year holiday beginning in January this year, versus a 2.4 percent rise forecast by analysts
• Producer prices for mining products surged 31 percent year-on-year while those for raw materials climbed 12.9 percent, the National Bureau of Statistics said Tuesday

Big Picture

China is again exporting inflation as factories increase prices after emerging from years of deflation. That fresh strength may moderate in coming months as year-ago comparisons gradually rise and Donald Trump’s policies add uncertainties to the global demand outlook.

Economist Takeaways

Continued pressure for raw materials is forcing companies to increase prices, according to Tao Dong, senior adviser for Asia Pacific private banking at Credit Suisse Group AG in Hong Kong. "Without strong demand, producers have limited space for price hikes," he said. "But I see a wide range of price increases because the cost push is so severe."

Both consumer and producer inflation will peak soon, Julian Evans-Pritchard, an economist at Capital Economics in Singapore, wrote in a report. "Tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term," he said.

"The latest inflation data add to the case for a continued moderate tightening in monetary policy," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report. "The central bank is likely to continue on that path in the months ahead, as policy makers lean against excess leverage, yuan weakness and capital outflows, and nascent inflationary pressure."

"We haven’t seen significant pass-through effect from PPI to CPI inflation yet, suggesting that the strong rebound in PPI inflation is a reflection of proactive fiscal policies," Zhou Hao, an economist at Commerzbank AG in Singapore, wrote in a report. With the Communist Party Congress later this year, "local governments are keen to deliver decent growth figures. Against this backdrop, the infrastructure investment pipeline will remain solid."

The Details

• The rise of the PPI can be attributed to sectors including oil and gas extraction, coal mining and steel production, the NBS said in a statement with the data
• The pickup in CPI was partially due to the timing of the Lunar New Year holiday, which fell in January this year and February last year, the statistics bureau said. Millions splurge on feasts, gifts and travel during the holiday, driving up prices.
• Rising inflation will probably help support nominal growth, according to Morgan Stanley. The expansion pace adjusted for price changes will accelerate from 8 percent last year to 9.4 percent this year even as real growth edges down to 6.4 percent from 6.7 percent, economists Robin Xing and Jenny Zheng wrote in a note. That will make it easier to rein in borrowing as the debt-to-GDP ratio will rise more slowly, they said.