China factory data sparks global inflation concern
China’s factory prices hit a more than two-year high last month, data showed yesterday, highlighting the country’s strong recovery but feeding concerns that it could filter through to the global economy just as central banks battle to maintain ultra-loose monetary policies and low interest rates.
Having largely navigated the pandemic crisis early last year, the Asian powerhouse has enjoyed months of improvement across the board and was the only major economy to expand last year.
And now that the roll-out of vaccines in major markets is gathering pace, demand for China’s goods continues to rise, putting upward pressure on prices in the world’s biggest exporter.
China’s producer price index (PPI), which measures the cost of goods at the factory gate, for last month expanded 4.4 per cent year on year, the National Bureau of Statistics (NBS) said.
The forecast-beating figure was “due to factors such as rising international commodity prices” including crude oil and iron ore, and boosted by an “increase in domestic industrial production and investment demand”, said NBS senior statistician Dong Lijuan.
Analysts had expected the rise in PPI, given the low base of comparison last year, when lockdowns and strict movement controls were imposed to stamp out Covid-19.
Observers said that, with China the leading exporter in the world, the rises could cause a headache for global central banks, which are already trying to temper worries that an expected surge in economic activity this year will fan inflation and force them to wind back their accommodative monetary policies.
But Nomura chief China economist Lu Ting noted that, this time, surging commodity prices have been “mainly driven by monetary easing and huge fiscal stimulus – especially in the US – outside China”.
“As the world’s largest exporter of manufactured goods, higher PPI inflation in China will be inevitably passed to other economies,” he said.
The Federal Reserve has led the pack in pledging repeatedly that, even if inflation does spike, it will not lift its record low interest rates until the US economy is back on track. Still, investors are not totally sold, and yields on US Treasuries – a gauge of future rates – are sitting near one-year highs.
Mr Raymond Yeung at Australia and New Zealand Banking Group added: “Our research has found that China’s PPI has a high positive correlation with (consumer prices) in the United States.
“The higher-than-expected PPI data could impact people’s judgment of inflation pressure in the US and globally, and this impact shouldn’t be underestimated.”
China’s economy has bounced back since the authorities brought the virus outbreak largely under control, with leaders setting a 2021 growth target of above 6 per cent and a mass vaccination campaign under way.
The International Monetary Fund this week raised its growth forecast for China to 8.4 per cent as well, after the world’s second largest economy became the only major one to expand last year.
Other official data yesterday showed China’s consumer price index rose 0.4 per cent year on year last month, with prices of some food items such as fresh fruit growing but that of pork dropping.