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China’s inflation exceeds expectations

China’s inflation exceeds expectations

BEIJING: China’s consumer price index (CPI) increased 1.8% year over year in August compared with 1.4% in July, a seven-month high, per data released by National Bureau of Statistics. It surpassed economists’ expectations of a 1.6% gain. Although this is a good sign for the economy, it is still below the inflation target of 3%. Core consumer price inflation, which excludes price impact of food and energy, increased 2.2% year over year in August compared with a 2.1% in July. Food prices decreased 0.2% year over year. However, it increased 1.2% on a monthly basis, driving the August inflation reading higher.

China’s producer price index increased 6.3% year over year in August compared with 5.5% in July, a four-month high. It surpassed economists’ expectations of a 5.7% gain. The increase in producer prices was driven by an increase in prices for coal, steel and other metals. Demand for steel rose owing to an increase in building activities. Economists are expecting China’s impressive reading of producer price inflation to provide momentum to the economy and also act as a catalyst to global growth, as commodity demand from the country increases. China’s GDP has been growing at a rapid pace. It increased 6.9% year over year in the second quarter of 2017, same as the first quarter. China reported a strong first half of 2017 but data released for July showed signs of fading GDP (read: China Q2 GDP Beats Expectations: ETFs in Focus ). The slowdown was widely expected. This can primarily be attributed to fears of a potential financial crisis owing to the looming debt problem faced by the country. The debt scenario in the world’s second-largest nation prompted the government to adopt a tightening monetary-policy stance in order to rein in debt (read: China’s Inflation, Debt & Impact on Australia: ETFs in Focus ). Although the inflation reading is a positive for the economy, economists do not expect China to change its stance on monetary policy yet.