China’s factory-gate inflation last month rose at the highest rate in more than a decade, official data showed yesterday, as the world’s second-largest economy worked to contain a surge in commodity prices.
Factories so far seem to be absorbing costs rather than passing them on to consumers as domestic demand recovers from the strict COVID-19 lockdowns imposed last year.
The producer price index (PPI), which measures the cost of goods at the factory gate, exceeded expectations, spiking 9 percent year-on-year last month, the Chinese National Bureau of Statistics (NBS) said.
It was its highest jump since September 2008.
In particular, prices in the oil and natural gas extraction industry rose 99.1 percent from a year earlier, NBS senior statistician Dong Lijuan (董莉娟) said.
“PPI is definitely a concern,” United Overseas Bank Ltd (大華銀行) economist Chen Ho Woei (陳浩偉) said.
Metal prices started to rise earlier this year with a recovery in construction, as well as steel demand for the auto industry, Chen said, adding that recent operation curbs in Tangshan, a major steel-producing city, also drove steel prices higher.
“Probably, producers are absorbing some of these costs, but it won’t be sustainable for them to keep doing that,” he said.
For now, PPI inflation has “already triggered Beijing’s response, including vowing to add supply and cracking down on bitcoin mining,” Nomura Holdings Inc chief China economist Lu Ting (陸挺) said.
He said that it would be unrealistic to expect a sharp drop in raw material prices in the near future, with “policy inertia” and a need to minimize incidents ahead of the 100th anniversary of the Chinese Communist Party on July 1 meaning a surge in output is unlikely.
Yet consumer prices were “generally stable” last month, Dong said.
The consumer price index (CPI), a key gauge of retail inflation, rose less than expected to 1.3 percent year-on-year, official data showed.
China’s CPI has been driven up in the past few years by pork prices after an African swine fever outbreak ravaged stocks, but it has since mostly stabilized with boosted supplies of the staple meat.
Dong said that “live pig production continued to recover and the pork supply continued to increase.”
Analysts expect a rise in CPI inflation as producer prices pass through, but say that it is likely to be gradual.
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