China’s factory prices rose at their fastest annual rate in more than 12 years in May, driven by rising commodity prices, underscoring global inflationary pressures as politicians sought to revive growth affected by COVID.
Investors are increasingly worried that pandemic stimulus measures could boost global inflation and force central banks to tighten policy, potentially limiting recovery.
China’s producer price index (PPI) has risen 9.0%, according to a statement from the National Bureau of Statistics (NBS), as prices deviate from last year’s pandemic lows.
The increase in the PPI – the fastest monthly increase since September 2008 – was caused by a significant increase in the prices of crude oil, iron ore and non-ferrous metals, the NBS said.
Analysts in a Reuters poll expected PPI to rise 8.5 percent after rising 6.8 percent in April.
The rise in PPIs has not yet affected consumer inflation in China, which means that the People’s Bank of China is unlikely to worry for now.
But there are some indications that Chinese factories with already low profit margins are transferring higher raw material and component costs to foreign customers, which could boost global inflation. Read more
“The concern is that PPIs could move at an elevated level over an extended period of time, which would create economic headaches if middle-down or downstream firms fail to bear higher costs,” said Ni Wen, chief economist at Hwabao Trust.
Consumer prices rose the most on an annual basis in eight months, but below expectations and remained well below the government’s official target of about 3%.
“Producer price inflation is likely to be near a peak … we do not expect (consumer price inflation) to rise well above 2% in the coming quarters. As such (data) is unlikely to cause a change in monetary policy,” he said. Julian Evans-Pritchard, senior economist in China at Capital Economics.
The publication comes as data on inflation in the US on Thursday is closely monitored by investors, who are worried that another big reading could put pressure on the Federal Reserve to start thinking about reducing the stimulus.
Chinese stocks of coal and resources rose after NBS producer price inflation, leading to a larger broad stock market (.SSEC), (.CSI300). L2N2NR08S
PRICES OF GOODS
On a monthly basis, PPI increased by 1.6%, compared to an increase of 0.9% in April.
Coal-fired power plants also stocked up on thermal coal to meet growing electricity demand during the summer peak, leading to a 10.6% increase in coal mining and leaching prices from 2.8% in the previous year. month, said Dong Lijuan, a senior statistician at the NBS.
The prices of raw materials, including coal, steel, iron ore and copper, which affect the PPI, have risen this year, fueled by a recovery in demand following global liquidation.
Higher commodity prices and low bases last year could further boost China’s producer price inflation in the second and third quarters, China’s central bank said.
Chinese politicians have pledged to take measures to cool the red-hot prices of goods and prevent them from being handed over to consumers, while the state planner said China would tighten controls on the prices of iron ore, copper, corn and other goods. Read more
NBS data also show that the consumer price index in China (CPI) rose by 1.3% in May on an annual basis, compared with an increase of 0.9% in April, but lower than the forecast of 1, 6% in the Reuters poll.
Food inflation rose 0.3% in May from a year earlier due to higher prices for freshwater fish and eggs, despite still falling pork prices. This compared with a 0.7% decline in food prices in April.
Non-food prices, including plane tickets, gasoline and diesel prices, accelerated to 5.5 percent, likely supported by China’s Labor Day holiday in early May. Read more
On a monthly basis, rising factory production costs began to be passed on to consumers in sales of refrigerators, TVs, laptops, building materials and summer clothing, but their price growth remained weak, said Dong from the NBS.
China’s economy rose sharply from the coronavirus-induced decline early last year, rising by a record 18.3 percent in the first quarter.
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