China's factory gate prices see fastest growth since 2008, adding to global inflation pressures

China's factory gate prices see fastest growth since 2008, adding to global inflation pressures

FILE PHOTO: People walk along Nanjing Pedestrian Road during the Labour Day holiday in Shanghai
FILE PHOTO: People walk along Nanjing Pedestrian Road, a main shopping area, in Shanghai, China May 5, 2021. REUTERS/Aly Song

BEIJING: China's factory gate prices rose at their fastest annual pace in over 12 years in May, driven by surging commodity prices, adding to global price pressures at a time when policymakers are trying to revitalise growth following the COVID-19-induced slump.

Investors are increasingly worried that pandemic-driven stimulus measures could supercharge global inflation and force central banks to tighten policy, potentially curbing the recovery.

China's producer price index (PPI) increased 9 per cent from a low base a year earlier, the National Bureau of Statistics (NBS) said in a statement, driven by significant price increases in crude oil, iron ore and non-ferrous metals.

Analysts in a Reuters poll had expected the PPI to rise 8.5 per cent after a 6.8 per cent increase in April.

Consumer prices saw their biggest year-on-year increase in eight months but came in below expectations and remained well below the government's official 3 per cent target. The surge in PPI has yet to feed through to consumer inflation, meaning the People's Bank of China is unlikely to worry for now.

"Producer price inflation is probably close to a peak...we don't expect (consumer price inflation) to rise much above 2 per cent in the coming quarters. As such, (the data) is unlikely to trigger any shift in monetary policy," said Julian Evans-Pritchard, senior China economist at Capital Economics.

Nie Wen, chief economist at Hwabao Trust, also said PPI would likely peak soon but added:

"The worry is PPI may hover at an elevated level for an extended period of time, which would create economic headaches if mid- or downstream firms fail to absorb higher costs."

COMMODITY PRICES

On a monthly basis, the PPI rose 1.6 per cent, up from a 0.9 per cent uptick in April.

Coal-fired power plants also stocked up on thermal coal to meet surging electricity demand during the summer peak, resulting in a 10.6 per cent month-on-month increase in prices in the coal mining and washing sector, up from 2.8 per cent the previous month, said Dong Lijuan, senior statistician at the NBS.

Prices for commodities including coal, steel, iron ore and copper, which affect the PPI, have surged this year, fuelled by post-lockdown recoveries in demand and ample global liquidity.

Higher commodity prices and low bases last year could further drive up China's producer price inflation in the second and third quarters, China's central bank has said.

Chinese policymakers have pledged to take measures to cool red hot commodity prices and prevent them being passed on to consumers, while the state planner has said China will strengthen price controls of iron ore, copper, corn and other commodities.

NBS data also showed China's consumer price index (CPI) rose 1.3 per cent in May in annual terms, up from a 0.9 per cent gain in April but lower than the 1.6 per cent forecast in the Reuters poll.

Food inflation rose 0.3 per cent in May from a year earlier on higher prices for freshwater fish and eggs, despite still falling pork prices. That compared with a 0.7 per cent drop in food prices in April.

Non-food prices, including airfares, gasoline and diesel prices, accelerated to 5.5 per cent, likely bolstered by China's Labour Day Holiday at the start of May.

On a monthly basis, rising factory input costs have started to be passed onto consumers in the sales of fridges, televisions, laptops, construction materials and summer clothes, but their price gains remained mild, NBS's Dong said.

China's economy has seen a strong rebound from a coronavirus-induced slump early last year, growing a record 18.3 per cent in the first quarter.

Source: Reuters

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