China factory gate price jump raises inflation concern

Beijing, China - Chinese factory prices hit a more than two-year high in March, data showed, highlighting the country’s strong recovery but feeding concerns it could filter through to the global economy just as central banks battle to maintain ultra-loose monetary policies and low interest rates.

Having largely navigated the pandemic crisis early last year, China has enjoyed months of improvement across the board and was the only major economy to expand in 2020.

And now the rollout of vaccines in major markets is gathering pace, demand for China’s goods continues to rise, putting upward pressure on prices in the world’s biggest exporter.

China’s producer price index (PPI), which measures the cost of goods at the factory gate, expanded a forecast-beating 4.4 per cent on-year last month, the National Bureau of Statistics (NBS) said.

The figure was ‘due to factors such as rising international commodity prices’ including crude oil and iron ore, and boosted by an ‘increase in domestic industrial production and investment demand’, said NBS senior statistician Dong Lijuan.

Analysts had expected the rise in PPI given the low base of comparison last year, when lockdowns and strict movement controls were imposed to stamp out COVID-19.

Observers said that with China the leading exporter in the world, the rises could cause a headache for global central banks, which are already trying to temper worries that an expected surge in economic activity this year will fan inflation and force them to wind back their accommodative monetary policies.

But Nomura chief China economist Lu Ting noted that this time, surging commodity prices have been ‘mainly driven by monetary easing and huge fiscal stimulus - especially in the US - outside China’.

“As the world’s largest exporter of manufactured goods, higher PPI inflation in China will be inevitably passed to other economies,” he said.

Raymond Yeung at Australia and New Zealand Banking Group said, “The higher-than-expected PPI data could impact people’s judgement of inflation pressure in the US and globally, and this impact shouldn’t be underestimated.”