China's producer price index returns to growth

Published: Feb. 9, 2021 at 10:12 p.m. ET

BEIJING--China's factory-gate prices swung to growth in January, ending an 11-month period of deflation as the industrial sector continued to lead the nation's economic recovery.

The producer price index rose 0.3% in January from a year earlier compared with December's 0.4% fall, the National Bureau of Statistics said Wednesday. The reading was in line with the expectations of economists polled by The Wall Street Journal, who had forecast an increase of 0.3%.

Driven by improved domestic demand and rising prices of crude oil, iron ore and other commodities, China's PPI climbed 1.0% in January from a month earlier, the statistics bureau said.

Meanwhile, China's consumer price index fell 0.3% from a year earlier in January. That compared with 0.2% growth in December. Economists had expected CPI to fall 0.2%, the WSJ poll showed.

The soft CPI headline was mainly due to a higher base of comparison last year when prices of consumer goods surged before the Lunar New Year. The festival falls in February this year.

Food prices rose 1.6% while non-food prices declined 0.8%.

Service prices, including air tickets and tourism, had surged in January last year when people traveled for the Lunar New Year holidays and before the outbreaks of Covid-19.

The government has this year encouraged residents to cancel their travel plans amid a resurgence of coronavirus cases, which has dragged down service prices, the bureau said.

On a monthly basis, China's consumer inflation accelerated its increase in January due to the cold weather and new coronavirus outbreaks in northern China. The CPI rose 1.0% in January from December, the statistics bureau said.0 level that reflected the surge in risk, to the low-20 range that had prevailed before the market and the rest of the world took notice of the likes of GameStop.

Yet the fundamentally more important financial development was, as usual, in the bond market. The yield curve—the graph of Treasuries from short- to long-term maturities—is the most sharply upwardly sloped in years. That’s a result of longer-term yields climbing, with the benchmark 10-year note ending the week at 1.17%, near the high end of its recent trading range, and the 30-year bond at 1.98%, nearing 2% for the first time in about a year.

This is a classic indication that the bond market is anticipating stronger economic growth and higher inflation. Those expectations got a boost Friday after both houses of Congress voted to begin the process of approving President Joe Biden’s $1.9 trillion fiscal relief plan without votes from congressional Republicans.

Friday’s employment report was disappointing, however, with a smaller-than-expected 49,000 increase in nonfarm payrolls in January, and December’s job loss revised to 227,000 from the 140,000 originally reported. The unemployment rate fell to 6.3% last month from 6.7%, but mainly because of lower labor-force participation. The uninspiring data could bolster the argument for fiscal action.

The prospect of stimulus has some economists boosting growth estimates, with Nancy Lazar of Cornerstone Macro now looking for the economy to be expanding at a 7% pace by the fourth quarter, up from her previous estimate of 6%. That’s what both the bond and stock markets seem to be pricing in, which means that any shortfall in a recovery would be a surprise. So far, 2021 has been full of them.