December’s factory gate inflation rose for the second straight month to 3.5% y/y (1.2% y/y in November) due to broad-based gains from all sub-components. As a result of two consecutive months of positive growth, it provided some cushion to the full-year average growth which fell by 1.3% in 2019 from -1.1% y/y in 2018.

Going forward, the PPI is likely to remain moderate. While the low base will influence the potential incoming data, some upwards pressure will also be seen from higher input costs. Thus, the PPI for 2020 could turn positive with the full-year average around 0.3%–0.5%.

• December’s factory gate inflation rose for the second straight month. In December, the PPI jumped to a 25-month high of 3.5% y/y against November’s 1.2% y/y. On a monthly basis, it gained by 0.8% m/m from 1.3% in November.

• As a result of two consecutive months of positive growth, it provided some cushion to the full-year average growth which fell by 1.3% in 2019 from -1.1% y/y in 2018.

• The strong rise in the PPI was due to: (1) agriculture, forestry and fishing – up 21.9% y/y from 19.9% y/y in November; (2) mining, up 19.3% y/y from 6.4% y/y in November; and (3) manufacturing with a 0.5% y/y growth for the first time since December 2017 (Nov: -0.7% y/y) as a result of gains from consumer electronic goods prices, which climbed 10.8% y/y in December from 7.2% y/y.

• Besides, local production rose across the board. Crude materials for further processing jumped 16% y/y in December (Nov: +5.9% y/y); intermediate materials gained by 0.4% (Nov: -0.4% y/y) and finished goods up 1.2% y/y from 1.4% y/y in November.

• Going forward, the PPI is likely to remain moderate. While the low base will influence the potential incoming data, some upwards pressure will also be seen from higher input costs. Thus, the PPI for 2020 could turn positive with the full-year average around 0.3%–0.5%.

Source: AmInvest Research - 31 Jan 2020