Global inflation is making a big comeback. China's producer prices rose the most in over five years in January, confirming that deflation is firmly in the rear view mirror as the world's largest exporter continues to push global prices higher. The producer prices index for January rose 6.9 percent year-on-year, beating analysts' expectations of 6.5 percent, the China National Bureau of Statistics said.

The surge in prices was driven by a 31 percent increase in mining costs as commodity prices continue their rise. Iron ore hit a two-year high in overnight trading through $90 a ton, and crude oil prices continue to hold above $50 a barrel. (See also: Oil Demand Set to Rise In 2017, OPEC says.

Furthermore, the consumer prices index for January beat expectations, rising 2.5 percent year-on-year. The increase in consumer prices is partly attributed to the Lunar New Year falling in January, when consumers spend extra on food and gifts for the holiday period. (See also: China Car Sales Jump on Lunar New Year Buying)

Exporting inflation

The surging prices confirm that China is exporting its inflation, which is good news for central banks that have spent years grappling with slack inflation numbers and even outright disinflation​. In Europe, German inflation hit 1.9 percent in January, the highest level since 2013, and last month U.K. inflation reached a two-and-a-half year high. (See also: European Growth Slows on High Inflation, Unemployment)

The pattern is the same in the U.S. On Tuesday, the Bureau of Labor Statistics said January producer prices rose 0.6 percent, the biggest jump since September 2012.

Interest rate rises

With the U.S. labor market remaining robust the rising inflation will give the Federal Reserve further impetus to continue normalizing interest rates. In her testimony on Tuesday, Fed Chair Janet Yellen confirmed rates will likely rise in 2017. "It's our expectation that rate increases this year would be appropriate," Yellen said. (See also: Yellen Sees More Rate Hikes With Economic Growth.)

In a further sign the inflation jump is not a blip, the People's Bank of China (PBOC) increased short-term interest rates last week to alleviate the possibility of overheating the economy. On the first day back after the Chinese New Year celebrations, the PBOC raised interest rates on reverse repurchase agreements by 10 basis points. However, some have expressed skepticism at the recent data. "Looking ahead, we don’t expect such high rates of inflation to last," Julian Evans-Pritchard of Capital Economics said in a note.

"The base effects that have boosted inflation in recent months are soon going to go into reverse. Meanwhile, tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term."

The bottom line

It's been eight years since central banks around the world slashed interest rates to record low levels in the wake of the financial crisis. However, recent inflation data suggests the global economy is showing signs that the heavily accommodative central bank policy is ready to be normalized. 

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