Oil price spike threatens China’s inflation outlook

The recent jump in global energy prices is putting renewed pressure on Chinese manufacturers. PHOTO: AFP

BEIJING (BLOOMBERG) - Surging global oil and gas prices due to the Russian invasion of Ukraine are adding to inflation risks in China as factory costs remain elevated.

The producer price index (PPI) rose 8.8 per cent from a year earlier, official data showed on Wednesday, down from 9.1 per cent in January and slightly above the median estimate of an 8.6 per cent increase in a Bloomberg survey of economists.

Consumer price growth was unchanged at 0.9 per cent, the same as economists projected. 

China only recently managed to tame surging factory prices as global supply constraints eased and the government took steps to curb commodity costs. The recent spike in global energy prices is putting renewed pressure on Chinese manufacturers, threatening to push up costs again, squeeze profits and slow economic growth further. 

“As February data does not factor in the recent surging commodities and energy prices, we see more upside pressures to PPI inflation in coming months,” said Ms Liu Peiqian, chief China economist at NatWest Group. “Subdued core inflationary trend suggests that domestic demand recovery is still soft and unstable.”

The Bloomberg producer price tracker rose faster this month after slowing for three months. The data provides an advance estimate for PPI based on the prices of various commodities. 

Consumer inflation remained muted, mainly due to a further drop in pork prices. Excluding pork, consumer prices rose 1.9 per cent.

Core inflation, which does not include volatile energy and food prices, slowed to 1.1 per cent after remaining unchanged at 1.2 per cent for three straight months. 

Consumer prices rose slightly from January due to Chinese New Year and fluctuations in international energy prices but was generally stable compared with the same period last year, senior statistician at the National Bureau of Statistics Dong Lijuan said in a statement.

Producer prices rose from January due to the rising cost of international commodities such as crude oil and non-ferrous metals, she wrote.

China is targeting full-year inflation of around 3 per cent, a goal the state economic planner said the authorities are capable and confident of achieving.

The government set an ambitious economic growth target of around 5.5 per cent for the year and signalled stronger fiscal stimulus is under way, which could drive the prices of raw materials higher. 

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