China’s highest producer inflation in over 12 years highlights global price pressures
China’s ex-factory prices in May rose at their fastest annual pace in more than 12 years on the back of soaring commodity prices, underscoring global inflationary pressures as policymakers try to revitalize growth affected by COVID.
Investors are increasingly concerned that the pandemic-induced stimulus measures will spike global inflation and force central banks to tighten policy, which could dampen the recovery.
China’s Producer Price Index (PPI) rose 9.0%, the National Bureau of Statistics (NBS) said on Wednesday, as prices rebounded from pandemic lows last year.
The rise in the PPI in May – the fastest annual gain since September 2008 – is due to significant increases in the prices of crude oil, iron ore and non-ferrous metals, the NBS reported.
Analysts in a Reuters poll expected the PPI to rise 8.5% after rising 6.8% in April.
Shortly after the inflation data, the National Development and Reform Commission said China would closely monitor commodity price movements and step up its price forecast to keep the market order.
“The concern is that the PPI could hover at a high level for an extended period of time, which would create economic headaches if middle or downstream companies failed to absorb higher costs,” said Nie Wen, Chief Economist at Hwabao Trust.
The surge in the PPI has yet to significantly influence consumer inflation, which means the People’s Bank of China shouldn’t be worried just yet.
Consumer prices rose 1.3% in May – the biggest year-over-year increase in eight months – but are below expectations of a 1.6% gain. Consumer inflation has remained well below the government’s official target of around 3%.
“Producer price inflation is probably near a peak … we don’t expect (consumer price inflation) to go well over 2% in the next few quarters. As a such, (the data) is unlikely to trigger any change in monetary policy, ”said Julian Evans-Pritchard, senior Chinese economist at Capital Economics.
But there are signs that Chinese factories, facing already tight margins, are passing higher raw material costs on to overseas customers, which could tighten the global inflation loop. Read more
The release comes as Thursday’s US inflation data is closely watched by investors, who fear another high reading will put pressure on the Federal Reserve to start thinking about reducing its stimulus.
Chinese coal and resource stocks rose after SNB producer price inflation data, pushing the stock market as a whole (.SSEC), (.CSI300) higher. L2N2NR08S
PRICES OF BASIC PRODUCTS
On a monthly basis, the PPI rose 1.6%, compared to an increase of 0.9% in April.
Power plants also sourced thermal coal to meet the high demand for electricity during the summer, resulting in a 10.6% month-over-month increase in prices in the gas industry. ‘coal mining and washing, up from 2.8% the previous month, said Dong Lijuan, senior. statistician at the SNB.
Commodity prices including coal, steel, iron ore and copper, which affect the PPI, have risen this year, fueled by the recovery in demand after the lockdown and abundant global liquidity .
Chinese imports by value grew at their fastest pace in 10 years in May, boosted by Chinese purchases of raw materials. Read more
Chinese policymakers have pledged to take action to cool commodity prices and prevent them from being passed on to consumers. Read more
The yuan’s recent gains have sparked speculation whether policymakers want a stronger currency to offset mounting import price pressures, but the central bank told Reuters this week it would not use not the exchange rate as a tool.
NBS data also showed that food inflation rose 0.3% in May from the previous year due to higher prices for freshwater fish and eggs, despite falling prices. pork. This compares to a 0.7% drop in food prices in April.
Non-food prices, including airline tickets, gasoline and diesel prices, accelerated to 5.5%, likely supported by Labor Day in China in early May. Read more
On a monthly basis, rising factory input costs began to trickle down to consumers in sales of refrigerators, televisions, laptops, building materials and summer clothing, but their increases prices have remained subdued, NBS’s Dong said.
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