Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
Chinese producer prices rose the most in March since July 2018 due to rising commodity costs, adding to concerns about rising global inflation as the pandemic abates.
The producer price index rose 4.4% year-on-year, after a 1.7% rise in February, the The National Bureau of Statistics said on Friday higher than the average estimate of 3.6% in a Bloomberg survey of economists. The consumer price index rose 0.4% after falling for two consecutive months.
After months of deflation, producer prices have risen sharply this year as the costs of oil, copper and agricultural commodities rise. As the world’s largest exporter, China’s rising prices threaten to fuel inflation around the world, adding to financial market volatility. Inflation risks are already increasing due to a stronger recovery in the global economy, massive fiscal stimulus in the US and rising shipping costs.
“Our research showed that the Chinese PPI has a high positive correlation with the US CPI,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. judgment on inflationary pressures in the US and worldwide, and this impact should not be underestimated. “
The CSI 300 Index fell 1.5% from 2:55 PM in Shanghai. Copper futures in Shanghai declined slowly, while structural steel also declined.
What Bloomberg Economics Says …
There was a significant difference under the rebound in inflation in China in March: commodity-linked prices were the main drivers, while those related to household demand were relatively stable. There are two implications: industrial companies can benefit from higher factor-rate prices, and consumers are not fully on their feet.
– David Qu, economist
Click here to read the full report
Rising Profits
Rising commodity prices have caught the attention of China’s top policymakers, with the Financial Stability and Development Committee – chaired by Deputy Prime Minister Liu He – called up this week about attempts to stabilize prices. Authorities must “keep a close eye on commodity prices,” the committee said in a statement Thursday evening.
The inflation data shows that consumption remains subdued, giving the central bank reason not to tighten monetary policy any time soon, ANZ’s Yeung said.
“As inflationary pressures begin to manifest in consumer prices, policies may begin to tighten,” he said.
Consumer price deflation in recent months has been mainly driven by falling pork prices, a key part of China’s CPI basket. While prices are likely to pick up, the slow recovery in household spending means that inflation is likely to remain subdued. Core consumer prices, not including volatile energy and food costs, rose 0.3% year-on-year in March, while food prices fell 0.7%.
“The manufacturing sector is recovering rapidly, but the speed of consumption recovery is not ideal,” said Zhou Hao, senior emerging markets economist at 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, while services will be a drag.”
PPI increases could reach more than 7% in the next two to three months, he added.
For Chinese companies, rising factory prices mean higher profits and more capacity to service debt industrial profits increased in the first two months of the year compared to the same period in 2020, recent data showed. However, purchasing prices for industrial companies rose even faster than the price of finished goods in March, which could weigh on profits if it continues.
– With assistance from John Liu, Yinan Zhao, Yujing Liu, Lianting Tu and Jason Rogers
Updates 1st and 3rd paragraphs.