BEIJING • China's factory gate prices rose at their fastest annual pace in over 12 years last month, driven by surging commodity prices, highlighting global inflation pressures at a time when policymakers are trying to revitalise Covid-hit growth.

Investors are increasingly worried that pandemic-driven stimulus measures could supercharge global inflation and force central banks to tighten policy, potentially curbing the recovery.

China's producer price index (PPI) increased 9 per cent, the National Bureau of Statistics (NBS) said yesterday, as prices bounced back from last year's pandemic lows. The PPI rise was driven by significant price increases in crude oil, iron ore and non-ferrous metals, the NBS said.

Analysts in a Reuters poll had expected the PPI to rise 8.5 per cent after a 6.8 per cent increase in April.

The surge in PPI has yet to feed through to China's consumer inflation, meaning the People's Bank of China is unlikely to worry for now. But there are some signs that Chinese factories, with already tight profit margins, are passing on higher raw material and component costs to overseas clients, which could reinforce the global inflation loop.

"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 Hwabao Trust's chief economist Nie Wen.

Consumer prices saw their biggest year-on-year rise in eight months but came in below expectations and stayed well below the government's official 3 per cent target.

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

The release comes as US inflation data today is being closely watched by investors, who worry another high reading might put pressure on the Federal Reserve to start thinking about tapering its stimulus.

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

Higher commodity prices and low bases last year could further drive up China's producer price inflation in the second and third quarters, China's central bank has said.

Chinese policymakers have pledged to take measures to cool red-hot commodity prices and prevent them being passed on to consumers, while the state planner has said China will strengthen price controls of iron ore, copper, corn and other commodities.

NBS data also showed China's consumer price index (CPI) rose 1.3 per cent last month in annual terms, up from a 0.9 per cent gain in April but lower than the 1.6 per cent forecast in the Reuters poll.

Food inflation rose 0.3 per cent last month from a year earlier on higher prices for freshwater fish and eggs, despite still falling pork prices. That compared with a 0.7 per cent drop in food prices in April.

Non-food prices, including airfares, gasoline and diesel prices, accelerated to 5.5 per cent, likely bolstered by China's Labour Day holiday at the start of last month.

On a monthly basis, rising factory input costs have started to be passed onto consumers in the sale of fridges, televisions, laptops, construction materials and summer clothes, but their price gains remained mild, NBS senior statistician Dong Lijuan said.

China's economy has seen a strong rebound from a coronavirus-induced slump early last year, growing a record 18.3 per cent in the first quarter.

REUTERS