China’s factory gate inflation hit a 13-year high last month driven by roaring raw material prices, despite Beijing’s attempts to cool the market, putting more pressure on manufacturers in the world’s second-largest economy.
The producer price index rose 9.5 percent from a year earlier last month, the National Bureau of Statistics (NBS) said yesterday, faster than the 9.0 percent increase tipped in a Reuters poll and the 9.0 percent reported in July. That was the fastest pace since August 2008.
China’s economy has recovered strongly from last year’s COVID-19 slump, but has been losing steam recently due to domestic COVID-19 outbreaks, high raw material prices, tighter property curbs and a campaign to reduce carbon emissions.
Photo: AFP
Commodity prices have been on a tear in recent months, hurting the bottom lines of many midstream and downstream factories. China’s coal prices soared to a record high on Tuesday over supply concerns as major coal regions began fresh rounds of safety checks.
Earnings at China’s industrial firms have slowed for five straight months.
However, coal and metals prices will likely drop back as construction activity falls amid restrictions on the property sector and slowing credit growth, said Julian Evans-Pritchard, senior China economist at Capital Economics.
The higher comparison base toward the end of last year could also pull down overall inflation.
“We doubt producer price inflation will rise much further,” he said.
The coal, chemicals and metals industries drove much of the price increases last month, according to a statement released alongside the data by Dong Lijuan (董莉娟), an NBS official.
Prices in the coal mining and washing sector grew 57.1 percent last month from a year earlier.
A separate NBS statement showed that the consumer price index (CPI) last month rose 0.8 percent from a year earlier, compared with a 1 percent gain in a Reuters poll and below the government target of about 3 percent this year.
China tightened social restrictions to curb the Delta variant of SARS-CoV-2, including travel limits, which have hampered service-sector demand, although Beijing has largely contained the latest COVID-19 outbreaks.
Declines in airfares, travel and hotel room prices due to the pandemic slowed consumer inflation on a monthly basis, Dong said.
Service-sector activity plunged last month to the lowest level since the pandemic’s first wave in April last year, a recent survey showed, as COVID-19 restrictions threatened to derail the recovery.
Many analysts expect the People’s Bank of China to deliver a further cut to the amount of cash banks must hold as reserves later this year to lift growth, on top of July’s cut, which released about 1 trillion yuan (US$155 billion) in long-term liquidity into the economy.
“We expect monetary policy to remain prudent with a slightly loosening bias for the rest of the year,” HSBC Greater China economist Jing Liu said.
China’s consumer price inflation, which is likely to stay muted, would not constrain a slight loosening stance, she added.
The core consumer price index, which strips out volatile food and energy prices, stood at 1.2 percent year-on-year, versus a 1.3 percent rise in July.
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