HONG KONG • China's factory gate inflation has accelerated to a 13-year high, adding to the pressure on global consumer prices, which have been pushed up by a commodities boom, soaring shipping costs and an uneven economic recovery from the coronavirus pandemic.
Producer prices in China rose 9.5 per cent last month from a year earlier, the National Bureau of Statistics said yesterday, mainly driven by higher commodity prices. US data due next week is forecast to show that consumer prices rose by more than 5 per cent for a third straight month in August as businesses raised prices for goods and services, even as the United States Federal Reserve claims the cost pressure will be temporary.
In the US, a shortage of materials, shipping bottlenecks and hiring difficulties will likely continue to put broader upward pressure on prices in the months ahead.
Importers in the country and in Europe were already faced with high shipping costs to move the record amounts of goods they are buying from China, and this faster factory inflation will boost their costs just as they stock up for the holiday season.
"Our analysis shows quite close correlation between China's PPI (producer price index) inflation and the US CPI (consumer price index) inflation," said Mr Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered in Hong Kong.
"Our forecast envisages elevated PPI inflation by the year end, before easing from next year. This implies inflation overshooting in the US may last for a while."
China's exports to the US to the end of last month are up by a third compared with last year, as the boost to US demand from stimulus and recovery combines with rising commodity costs and faster factory prices in China to drive up the value of goods trade.
Shipping costs have also soared due to container shortages, shuttered ports, Covid-19 outbreaks and other factors.
The rally in commodity prices has been a major driver of factory-gate inflation this year. The Chinese government's targeted steps to curb the rapid gains have had limited effect so far.
The surge in PPI was largely due to rising prices of products such as coal, chemicals and steel, Mr Dong Lijuan, a senior statistician at the bureau, said in a statement.
Output prices in the coal mining industry grew the fastest, up 57.1 per cent last month from a year ago, according to an industry breakdown by the NBS.
The continued effective ban on imports of Australian coal is also likely affecting prices in China.
However, the gains in PPI are not being passed through to Chinese consumer inflation, which remained subdued due to lacklustre demand, falling food prices and a drop in spending on travel services after the government imposed stringent controls to curb virus outbreaks last month.
While the muted consumer inflation provides room for more policy support, this week's strong export data and comments from central bank officials suggest a smaller chance of further easing in the near future, economists say.
The People's Bank of China sees inflation pressure as controllable, saying last month that the pick-up in producer prices in the first half was likely temporary. The economic recovery has also lost steam recently following the outbreak of new virus cases.
That may be some comfort for the US Fed, which argues that the current bout of inflation is due in part to supply-chain disruptions brought about by Covid-19 and likely to be transitory.
BLOOMBERG
