Factory prices in China rose at the fastest pace since 2018 as companies recovered

Workers make shoes at a factory in Xiangtang, Jiangxi Province last year. (AP photo)

Official data showed, Wednesday, that factory prices in China rose in February at the fastest pace in more than two years, as the country’s huge industrial sector recovered from the recession caused by the Corona virus.

The Producer Price Index (PPI), which measures the cost of goods at the factory gate, rose 1.7% last month according to data from the National Bureau of Statistics, beating analysts’ expectations.

China’s producer price index rose for the first time in a year in January, and the February rate was the fastest since November 2018.

Analysts expect that an increase in global commodity prices will lead to an increase in inflation in the world’s second largest economy in the coming months.

The chief statistician at the National Bureau of Statistics, Dong Lijuan, said that the prices of oil-related industries continued to rise due to “the continuous upward trend of global crude oil prices.”

Dong added that there has been an increase in domestic demand and the continued growth of international mineral commodity prices as well, which has led to an increase in the prices of metallurgical industries.

“Input costs have also risen due to higher prices for electronics components, especially semiconductors, as well as factors such as higher shipping costs due to the shortage of containers,” IHS Markit’s chief economist for Asia Pacific, Rajiv Biswas, told AFP.

On the other hand, consumer prices fell 0.2% in February, slightly less than analysts had expected, weighed in part by food prices.

Pork prices were 14.9% lower than they were in the same period last year, when the cost of staple meat rose after African swine fever devastated China’s herds.

Julian Evans-Pritchard, chief Chinese economist at Capital Economics, said the recent period of consumer price deflation is unlikely to continue, adding that the drop in food inflation resulted from shifts in the timing of the Lunar New Year.

The Chinese economy is preparing for a strong comeback this year, as Beijing has set a modest growth target of over 6% and analysts expect a higher figure.

Consumer inflation is also expected to pick up due to the government’s target of a 3% increase by 2021.

Nomura’s chief Chinese economist, Lu Ting, said that the mass launch of vaccines around the world and fiscal stimulus programs in many advanced economies with low interest rates means that commodity prices may rise even more in the next few months.

“China is highly dependent on imports of energy and commodities, so higher prices for these products will have a material effect on inflation in China, especially PPI inflation,” Luo warned in a market note.

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