“China’s surging PPI fits the narrative of ‘global reflation’ – a nebulous term that relates to stronger global growth and rising inflation – but we are cautious in linking China’s surging PPI to global reflation,” says Asian Insights note from Nomura.
The global markets research team says the surging PPI could derail the process of economic rebalancing in the world’s second largest economy.
Surging PPI inflation could hamper China’s efforts to rebalance the economy from investment to consumption. The upstream sectors that benefit from the PPI surge are more old economy, capital intensive and less efficient state-owned enterprises. The consumer and service-related sectors and the bulk of private enterprises are in downstream industries that could face a margin squeeze.