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Increase in China Factory Price Inflation

Increase in China Factory Price InflationIncrease in China Factory Price Inflation

China’s factory price inflation rose again in September, official data showed Monday, indicating the improving domestic demand while the central bank chief said he expects strong growth in the second half despite fears of slowdown.

Producer price index, an important barometer of the industrial sector, accelerated to a better-than-expected 6.9% on-year, picking up from 6.3% in August, AFP reported.

The increase comes as the government battles to reduce excess industrial capacity and pollution and will please leaders looking to transform the country’s growth driver from exports and state investment to one based on domestic consumption.

The figures, which followed healthy imports data on Friday, come days before the Communist Party holds its twice-a-decade gathering that will hand Xi Jinping a second term as president. Data was announced after the People’s Bank of China governor Zhou Xiaochuan said the world’s number-two economy could grow 7% in the second half of the year after expanding 6.9% in the first six months.

“The momentum of economic growth has rebounded this year,” Zhou said at a G30 International banking seminar on Sunday, according to remarks published on the bank’s website Monday.

“The driving force propelling economic growth came mainly from the rapid pickup in household consumption,” he added. “The development of the service industry has accelerated.”

The over-reliance on investment has saddled the country with a ballooning debt load, prompting warnings from analysts that it could hurt China’s growth and trigger another financial crisis.

“China’s overall leverage ratio is quite high,” Zhou told the audience of policymakers and bankers, blaming the high corporate debt levels in particular. “We will further deepen reform and promote gradual deleveraging.”

China’s factory gate inflation for September unveiled by the National Bureau of Statistics beat the 6.4% forecast by a Bloomberg News survey of economists.

However, the consumer price index, a main gauge of retail inflation, rose 1.6% year-on-year in September, lower than 1.8% in August, owing to a fall in food prices.

The producer price index was predicted to have risen 6.3% in September from a year ago, steady from August, according to Reuters.

The strong PPI print that points to higher factory gate prices may help markets outside of China as the East Asian economy continues to grow, translating into demand for raw materials, said Tony Boyadjian, Compass Global Market’s senior vice president of foreign exchange.

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