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June 10, 2021

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PPI rises 9%, the fastest pace of growth in over 12 years

CHINA’S May factory gate prices rose at their fastest annual pace in over 12 years due to surging commodity prices, highlighting global inflation pressures at a time when policy-makers are trying to revitalize COVID-hit growth.

The producer price index increased 9.0 percent, accelerating from the 6.8 percent growth in April, Dong Lijuan, a senior official with the National Bureau of Statistics, said yesterday, as prices bounced back from last year’s pandemic lows.

The PPI rise in May — the fastest on-year gain for any month since September 2008 — was driven by significant price increases in crude oil, iron ore and non-ferrous metals, the NBS said.

Shortly after the inflation data, the National Development and Reform Commission said China will closely monitor price movements of commodities and step up price forecasts to maintain market order.

“The worry is PPI may hover at an elevated level for an extended period of time, which would create economic headaches if mid- or downstream firms fail to absorb higher costs,” said Nie Wen, chief economist at Hwabao Trust.

The PPI surge has yet to substantially feed through to consumer inflation. Consumer prices rose 1.3 percent in May, the biggest year-on-year increase in eight months, but remained well below the government’s official target of around 3 percent.

The carryover effect contributed 0.7 percentage points to the CPI growth, while new price increases contributed 0.6 percentage points. The average CPI in the first five months of the year went up 0.4 percent from the same period last year, according to the NBS.

“Producer price inflation is probably close to a peak ... we don’t expect (consumer price inflation) to rise much above 2 percent in the coming quarters. As such, (the data) is unlikely to trigger any shift in monetary policy,” said Julian Evans-Pritchard, China economist at Capital Economics.

On a monthly basis, the PPI rose 1.6 percent, up from a 0.9 percent uptick in April.

Power plants also stocked up on thermal coal to meet surging electricity demand during summer, resulting in a 10.6 percent month-on-month increase in prices in the coal mining and washing sector, up from 2.8 percent the previous month, said Dong.

Prices for commodities including coal, steel, iron ore and copper, which affect the PPI, have surged this year, fueled by post-lockdown recoveries in demand and ample global liquidity.

Imports in value terms grew at their fastest pace in 10 years in May, boosted by Chinese purchases of raw materials.

NBS data also showed food inflation rose 0.3 percent in May from a year earlier on higher prices for freshwater fish and eggs, despite still falling pork prices. That compared with a 0.7 percent drop in food prices in April. Non-food prices went up 1.6 percent year on year in May, compared with the 1.3-percent increase in April, with the price of air tickets surging 32.3 percent and that of gasoline up 22 percent.


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