China consumer inflation slows down in December

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Producer prices in the world's second-largest economy nevertheless marked the fastest pace of increase in more than five years in December.

"I don't think there's an inflation issue in China, it's an asset bubble", said Commerzbank senior emerging market economist Zhou Hao in Singapore.

The Producer Price Index, which measures costs for goods at the factory gate, gained 5.5 percent year on year in December, the highest since September 2011, the National Bureau of Statistics said in a statement yesterday. Analysts polled by Reuters had expected a 4.5 percent gain.

The consumer price index (CPI), a key gauge of retail inflation, rose 2.1 percent year-on-year last month, slightly below expectations. Also, rising speculations that the economic growth will slow to 6 percent boosted demand for safe-haven buying.

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The sustained producer price jump has not yet started filtering into consumer prices, suggesting the People's Bank of China will not be under immediate pressure to tighten monetary policy, analysts say.

The rebound in prices of industrial commodities such as coal, steel and non-ferrous metals helped to drive the increase, according to the statistics bureau. "Our calculation indicates the rise in PPI inflation in H1 2017 should add no more than 0.5ppts [percentage points] to China's CPI inflation in 2017". Meanwhile, non-food inflation climbed to 2 percent from 1.8 percent.

"High commodity prices will delay the government effort to deal with over capacity", said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Hong Kong.

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