June 9, 2021

China factory inflation at fastest since 2008 on commodity boom

By ellen

BEIJING (BLOOMBERG) – Surging commodity costs drove China’s factory-gate inflation to its highest level since 2008 in May, further adding to global price pressures.

The producer price index (PPI) climbed 9 per cent from a year earlier, following a 6.8 per cent gain in April, the National Bureau of Statistics said on Wednesday (June 9). The median forecast in a Bloomberg survey of economists was for a 8.5 per cent increase. Consumer prices increased 1.3 per cent from a year ago, missing an estimate of 1.6 per cent.

Commodity prices have rallied this year as the global recovery strengthened, pandemic-induced supply shortages persisted, and governments around the world pumped in record amounts of stimulus. Chinese policymakers have taken targeted steps to curb soaring prices, including measures to expand supply of raw materials and crack down on speculation and hoarding, while also dialing up their rhetoric to curtail costs.

So far, the impact of higher metal prices has showed up mainly in upstream industries involved in the mining and processing of raw materials, while price increases in downstream industries like furniture and textiles have been minimal, according to an analysis by Bloomberg Economics.

The pass through from PPI to consumer prices has also been limited, given that the link between the two has weakened. Intense competition among smaller businesses, spurred by the rise of e-commerce, and weak domestic demand mean China’s factories are absorbing rising input costs rather than passing them on to consumers at home.

Authorities have said PPI will likely continue to climb through the second quarter before moderating in the second half of this year. However, the central bank is likely to avoid hiking interest rates in response to the inflation data and also keep liquidity in the banking system tightly balanced, economists say.