Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
China’s producer prices rose the highest since July 2018 on rising commodity costs, contributing to concerns about rising global inflation as the pandemic declines.
The producer price index rose by 4.4% compared to a year earlier after rising by 1.7% in February The National Bureau of Statistics said Friday that it is higher than the average estimate of 3.6% in a Bloomberg survey among economists. The consumer price index rose 0.4% after falling for two consecutive months.
After months of deflation, producer prices began to rise sharply this year as the costs of oil, copper and agricultural goods rose. As the world’s largest exporter, China’s rising prices threaten to fuel inflation around the world, resulting in volatility in financial markets. Inflation risks are already increasing due to a stronger recovery in the world economy, massive fiscal stimulus in the US and rising shipping costs.
“Our research found that China’s PPI has a high positive correlation with CPI in the US,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. “The higher-than-expected PPI data could affect people’s judgment of inflationary pressures in the US and globally, and this impact should not be underestimated.”
The CSI 300 index fell 1.5% in Shanghai from 14:55. Copper futures contracts in Shanghai declined, while construction steel also declined.
What Bloomberg Economics says …
Under the upswing in China’s inflation in March, there was a marked deviation – commodity-linked prices were the biggest drivers, while domestic-related prices were relatively stable. There are two implications: industrial enterprises can earn through higher factor port prices, and consumers are not completely back on their feet.
– David Qu, Economist
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Increasing profits
Rising commodity prices have attracted the attention of China’s leading policymakers, with the Financial Stability and Development Committee – chairman by Deputy Prime Minister Liu He – this week called for efforts to stabilize prices. Authorities need to “keep a close eye on commodity prices,” the committee said in a statement Thursday night.
According to inflation data, consumption remains subdued, giving the central bank reason not to tighten monetary policy any time soon, according to ANZ’s Yeung.
“If inflationary pressures start to manifest in consumer prices, policies could start to intensify,” he said.
The deflation of consumer prices over the past few months has been mainly driven by falling pork prices, a key component of China’s CPI basket. Although prices are likely to rise, the slow recovery in household spending means that inflation is likely to remain subdued. Core consumer prices, which exclude volatile energy and food costs, rose by 0.3% in March from a year earlier, while food prices fell by 0.7%.
“The recovery of the manufacturing industry is fast, but the speed of consumption improvement is less than ideal,” said Zhou Hao, senior economist of emerging markets. Commerzbank AG in Singapore. “The recovery of the service sector is also not ideal, but manufacturing is exceptionally good, which means that manufacturing will drive economic growth in the future, while services will be a draw.”
PPI increases could reach more than 7% in the next two to three months, he added.
For Chinese businesses, rising factory prices mean higher profits and more ability to pay off debt recent data show that industrial profits increased in the first two months of the year from the same period in 2020. Purchasing prices for industrial enterprises rose even faster in March than the price of finished goods, which could hurt profits if they continued.
– Assisted by John Liu, Yinan Zhao, Yujing Liu, Lianting Tu and Jason Rogers
(Updates 1st and 3rd paragraphs.)