China’s Producer Prices Surge Alongside Soaring Commodities

(Bloomberg) -- China’s factory-gate prices surged more than expected in April, supported by gains in commodity prices and a low base of comparison from last year, while consumer inflation remained relatively subdued.

The producer price index rose 6.8% from a year earlier, its fastest pace since October 2017, following a 4.4% gain in March, the National Bureau of Statistics said Tuesday. The median forecast was for a 6.5% increase. Consumer prices increased 0.9% on year, slightly below the 1% gain projected by economists.

The commodities boom, fueled by rising global demand and supply shortages, has stoked concerns about inflation around the world. With China the world’s biggest exporter, its rising PPI is another risk to global inflation as manufacturers start passing on higher prices to retailers.

Central bankers from the U.S. Federal Reserve on down maintain that recent price gains are temporary. In China, policy makers insist the impact of commodity prices on the domestic economy will be limited and that price growth remains generally under control. Still, officials have pledged to strengthen controls on the raw-materials market to limit costs to companies.

Click here for a breakdown of China’s April producer prices

The NBS said the gain in producer prices was due to a steady recovery in domestic production and rising prices of iron ore and non-ferrous metal.

Consumer inflation, meanwhile, remained relatively subdued amid lower pork prices, a key element in the country’s CPI basket.

The widening gap between CPI and PPI “suggests an uneven recovery of the economy,” said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd. “Despite the commodity boom, the service sector has yet to catch up.” Wages are lagging and the central bank will likely keep its policy stance “largely neutral,” he said.

The People’s Bank of China is seeking to scale back the stimulus it pumped into the economy during the pandemic last year, worried by the build up of debt. Economists expect policy makers to slow the pace of credit expansion rather than raise interest rates. The Communist Party’s Politburo, China’s top decision-making body, said last month there won’t be any sharp reversal of macroeconomic policies.

China aims to keep consumer inflation at around 3% this year, but an NBS official said in a recent interview that the headline index is expected to be “significantly lower” than the official target in 2021.

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