China inflation: surging factory prices seen nearing peak with no ‘lasting strong demand’ for commodities

Inflation risks mounted in recent months, sparking worries in the US and Europe that further rises in commodity prices could slow the global economic recovery

But economists say Beijing’s measures to rein in the prices of raw materials are likely to reduce pressure on China’s factory prices in the coming weeks, making goods cheaper

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Beijing rolled out a raft of policy measures in recent weeks to boost the domestic supply of major raw materials, including steel (above). Photo: Reuters

Published: 10:00pm, 9 Jun 2021Updated: 11:00pm, 9 Jun 2021

Despite hitting its highest point since the 2008 global financial crisis, the inflation rate in China’s factory prices looks to be nearing its peak, according to economists who cite the nation’s attempts to curb skyrocketing raw material prices.

Several Chinese analysts said the current round of global commodity price spikes was not sustainable, but they still warned that Beijing should be wary of imported price pressures resulting from an ongoing imbalance between production and demand in the world, as well as from the United States’ infrastructure stimulus.

Additionally, many experts expect that small manufacturers in the consumer goods sector will have to shoulder a greater cost burden amid shrinking profit markets.

Inflation risks have been mounting worldwide in recent months, leading to worries in the US and Europe that a continued increase in commodity prices could weigh heavy on the global economic recovery from the coronavirus.

And as the world’s largest manufacturer, China is not immune from the impact. This was particularly highlighted on Wednesday as data showed that the producer price index (PPI) – reflecting prices that factories charge wholesalers for products – rose by 9 per cent in May from a year earlier. This was largely due to a sharp rise in the prices of international crude oil, iron ore, non-ferrous metals and other bulk commodities, according to the National Bureau of Statistics (NBS).

But Lu Ting, chief China economist at Nomura, was among those who said that the higher-than-forecast reading for May likely marked the peak in this upcycle, and he expected that the producer price index (PPI) will dip slightly to around 8.8 per cent in June. A Bloomberg survey of analysts had predicted a May PPI rise of 8.5 per cent.

“As Beijing has rolled out a raft of policy measures to boost the domestic supply of major raw materials – including coal, iron ore, steel and electricity – we have seen some moderation in raw materials prices in recent weeks,” Lu wrote in a note on Wednesday.