Inflationary pressure emanating from the factory to the world is proving more resilient than economists have anticipated.
China’s producer-price inflation (PPI) last month accelerated to 6.3 percent from a year earlier, exceeding all but one of 38 estimates in Bloomberg’s survey of economists.
That data released on Saturday followed 5.5 percent readings in the prior three months and was unexpected for analysts, who have been forecasting more moderation in pricing pressures.
The surprise strength gives support for global inflation spanning from metals to fuel and shows the effects of resilient domestic demand and reduced supplies of some commodities.
China’s authorities have been closing mills and smelters to cut excessive industrial capacity and help curb pollution, in turn straining production of metals such as aluminum and steel.
“The key driver has likely come from the supply side,” such as production cuts in response to intensified environmental enforcement in recent months, Robin Xing (邢自強), chief China economist at Morgan Stanley in Hong Kong, wrote in a note.
The bank last week raised its PPI forecast for this year from 4.5 percent to 5.5 percent, citing stricter anti-pollution measures.
Global metal prices soared last month as China’s demand held up on robust investment and construction amid government reforms that may crimp supplies. That market strength underpins worldwide inflation, and helps ease debt burdens on raw-material producers.
China’s environmental campaign has intensified this year. Inspections that began in Hebei Province, which surrounds Beijing and is the biggest steel-producing province, have been extended to several more cities and provinces and led to the closures of some businesses and factories.
Aluminum Corp of China (中國鋁業), the nation’s top state-owned smelter of the metal, pledged this month to cut capacity during the winter to curb emissions.
Aluminum prices have has surged this year, making it one of the best-performing commodities, on expectations for supply cuts and resilient demand from property and infrastructure. That is boosting producer inflation.
“While cyclical demand remained resilient, the ‘rationed’ output volume amid stricter environmental inspections may have led to stronger inflationary pressure in August,” Liu Wenqi (劉雯琪), an analyst at China International Capital Corp (CICC, 中國國際金融) in Beijing, wrote in a report.
Another underpinning comes from infrastructure investment, which is often used to buffer growth amid downward economic pressure. The share of spending used for road, rail and other infrastructure this year has surpassed levels during the global financial crisis, according to a Bloomberg Intelligence analysis.
“August’s price data show China’s reflation story remains intact,” Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report on Saturday.
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