Employees work on a battery production line at a factory in Huaibei, Anhui province, China, March 30, 2020.
China’s National Bureau of Statistics said on March 9 that the Producer Price Index (PPI) rose 4.4 percent in March from a year earlier, above the median estimate of 3.6 percent in a Bloomberg survey of economists, after the index rose 1.7 percent in February. The Consumer Price Index (CPI) rose 0.4% from a year earlier after two consecutive months of declines.
After several months of deflation, production prices for products in mainland China have risen sharply this year due to a recovery in the prices of oil, copper and agricultural products.
China’s consumer price deflation in the first few months was driven primarily by a decline in the price of pork, a key component of the CPI “basket. Excluding volatile energy and food costs from core consumer prices, food prices in mainland China rose 0.3% in March from a year earlier.
Top Communist Party policymakers are nervous, and this week the State Council’s Financial Stability Development Committee, led by Vice Premier Liu He, called for greater efforts to stabilize prices. In a statement released after a meeting Thursday evening, the committee stressed that authorities should “pay close attention to commodity prices.
As the world’s largest exporter, rising prices in mainland China are likely to further fuel global inflation and add more turbulence to financial markets. Inflation risks are already growing as the world economy recovers more strongly and the U.S. adopts massive fiscal stimulus measures, coupled with soaring transportation costs.
“Our research finds that China’s PPI has a high positive correlation with the U.S. CPI.” Dr. Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Limited (ANZ), said, “The higher-than-expected PPI data could The impact of higher-than-expected PPI data on the U.S. and global inflationary pressures should not be underestimated.
“Manufacturing is recovering quickly, but consumption is rebounding at a less-than-ideal pace.” “The recovery in the service sector is also not good, but manufacturing is particularly good, which means that manufacturing will continue to drive growth in the future, while the service sector will be a drag,” said Zhou Hao, a senior economist at Commerzbank AG in Singapore. He also added that PPI growth could soar above 7 percent in the next two to three months.
Recent data show industrial profits jumped in the first two months of the year compared with the same period in 2020, and for mainland Chinese companies, higher ex-factory prices for goods mean higher profits and stronger debt servicing. However, in March, industrial companies’ purchase prices rose even faster than the prices of finished goods, which could squeeze out corporate profits if it continues.
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