BEIJING (BLOOMBERG) - China's factory-gate prices surged more than expected in April, fueled by rapid gains in commodity prices, adding to global inflation concerns.
The producer price index rose 6.8 per cent from a year earlier, its fastest pace since October 2017, following a 4.4 per cent gain in March, the National Bureau of Statistics said on Tuesday (May 11). The median forecast was for a 6.5 per cent increase. Consumer prices increased 0.9 per cent on year, slightly below the 1 per cent gain projected by economists.
The commodities boom, fueled by rising global demand and supply shortages, has stoked concerns about inflation around the world. With China being the world's biggest exporter, its rising cost pressures for the nation's factories pose another risk to global inflation as manufacturers start passing on higher prices to retailers.
Surging factory prices stem from "a combination of domestic and international factors," said Iris Pang, chief economist for Greater China at ING Bank. They include strong domestic demand for raw materials due to continued momentum of infrastructure and property projects in China, as well as expectations of higher material prices globally thanks to the US infrastructure building plan, Pang said.
Asian stocks and US equity futures slid on Tuesday after a technology-led Wall Street tumble as surging commodity prices stoked concern about inflation. A US CPI report on Wednesday is also forecast to show a strong gain in April.
The NBS said the gain in producer prices was due to a steady recovery in domestic production and rising prices of iron ore and non-ferrous metal. Consumer inflation, meanwhile, remained relatively subdued amid lower pork prices, a key element in the country's CPI basket.
Central bankers from the US Federal Reserve on down maintain that recent price gains are temporary. In China, policy makers insist the impact of commodity prices on the domestic economy will be limited and that price growth remains generally under control. Still, officials have pledged to strengthen controls on the raw-materials market to limit costs to companies.
The widening gap between CPI and PPI "suggests an uneven recovery of the economy," said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group. "Despite the commodity boom, the service sector has yet to catch up." Wages are lagging and the central bank will likely keep its policy stance "largely neutral," he said.
The People's Bank of China is seeking to scale back the stimulus it pumped into the economy during the pandemic last year, worried by the build up of debt. Economists expect policy makers to slow the pace of credit expansion rather than raise interest rates. The Communist Party's Politburo, China's top decision-making body, said last month there won't be any sharp reversal of macroeconomic policies.
China aims to keep consumer inflation at around 3 per cent this year, but an NBS official said in a recent interview that the headline index is expected to be "significantly lower" than the official target in 2021.
