Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
China’s producer prices rose in March at most since July 2018 due to rising raw material costs, adding to concerns about rising global inflation in as the pandemic recedes.
The production price index rose 4.4% from the previous year after gaining 1.7% in February The national statistics office said Friday, above the 3.6% average estimate in a survey of Bloomberg economists. The consumer price index rose 0.4% after falling for two months in a row.
After months of deflation, producer prices have begun to rise sharply this year, as the cost of oil, copper and agricultural products rose. As the world’s largest exporter, rising prices in China threaten to provoke inflation worldwide, which increases the volatility of financial markets. Inflation risks are already rising due to a stronger recovery in the global economy, a massive fiscal stimulus in the United States and high shipping costs.
“Our research has shown that China’s PPI has a high positive correlation with the CPI in the United States,” said Raymond Yeung, chief economist at Greater China in Australia and New Zealand Banking Group Ltd. judgment of inflationary pressure in the U.S. and around the world, and that impact should not be underestimated. “
The CSI 300 index fell 1.5% at 2:55 p.m. in Shanghai. Futures on copper in Shanghai fell, while construction steel also fell.
What Bloomberg Economics says …
Under the rise in China’s inflation in March was a revealing divergence: commodity-linked prices were the main drivers, while those related to household demand were relatively stable. There are two implications: industrial companies will win at higher prices and consumers will not get back on their feet.
– David Qu, economist
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Growing benefits
Rising commodity prices have gained the attention of China’s top political leaders, with the Financial Stability and Development Committee – presided over by Deputy Prime Minister Liu He – calling for efforts this week to stabilize prices. Authorities are expected to “closely monitor commodity prices,” the committee said in a statement Thursday evening.
Inflation data shows that consumption remains low, which gives the central bank a reason not to tighten monetary policy soon, according to ANZ’s Yeung.
“If inflationary pressures start to manifest in consumer prices, the policy could start to harden,” he said.
Consumer price deflation in recent months was driven mainly by falling pork prices, a key component of China’s CPI basket. While prices are likely to rise, the slow recovery in household spending means that inflation will remain moderate. Basic consumer prices, which exclude energy and volatile food costs, rose 0.3% in March from the previous year, while food prices fell 0.7%.
“The recovery of the manufacturing industry is fast, but the speed of the rise in consumption is lower than ideal,” said Zhou Hao, senior economist of emerging markets of Commerzbank AG in Singapore. “The recovery of the services sector is not ideal either, but manufacturing is exceptionally good, which means manufacturing will continue to drive economic growth forward, while services will be a problem.”
PPI increases could reach 7% in the next two to three months, he added.
For Chinese companies, rising factory prices mean higher profits and more ability to repay debt industrial profits increased in the first two months of the year compared to the same period in 2020, according to recent data. However, purchase prices for industrial companies rose even faster in March than the price of finished goods, which could reduce profits if it continues.
– With the assistance of John Liu, Yinan Zhao, Yujing Liu, Lianting Tu and Jason Rogers
(Updates to the first and third paragraphs.)