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Producer prices in China leaped again last month, prepare for a knock-on effect on the UK.

Something odd happened in China last month, but don’t expect the oddity to last.

China’s inflation rate fell, and quite sharply, down from 2.5 per cent in January, a 32-month high, to just 0.8 per cent in February.

That was a surprise.

However, producer prices surged – again. This time producer prices rose by 7.8 per cent, from 6.0 per cent the month before, and negative a few months ago.

The surge in China’s producer prices is one of the most important economic stories around at the moment, but it is getting very little attention.

Rising producer prices in China today, will hit prices in Europe within a few months.

So, why did inflation fall? This seems to have been related to the Chinese New Year, which coincided with a sharp fall in food inflation.

On the other hand, and as Julian Evans-Pritchard, China Economist at Capital Economics pointed out, "A simple way to iron out the seasonal volatility and get a sense of underlying trends is to average inflation rates during the first two months of the year. On this basis, consumer prices rose 1.7 per cent year on year at the start of 2017, slower than the 2.2 per cent year on year seen in Q4 of last year. “

By contrast, he says that average producer price inflation in January and February was 7.4 per cent, compared with 3.3 per cent in Q4 of last year.

Watch producer prices in China, if they continue to rise, the impact on the West later this year will be significant.

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