China’s producer price index up 4.7 per cent in June, beating forecasts

China’s producer inflation accelerated to a six-month high in June, lifted by strong commodity prices and threatening to put more pressure on the country’s exporters as a trade war escalates between Washington and Beijing.

Annual consumer inflation also edged up as food prices rose at a faster pace, official data showed on Tuesday, though the central bank is likely to remain more focused on cushioning the slowing economy than retail prices.

The United States and China slapped tariffs on US$34 billion worth of each others’ goods last week, fuelling fears of a prolonged battle that would hurt global trade, investment and growth, while also damaging US farm exports and potentially driving up food prices in China.

The producer price index (PPI) – a gauge of industrial profitability – rose by a stronger-than-expected 4.7 per cent in June from a year earlier, compared with a 4.1 per cent increase in May, according to the National Bureau of Statistics.

China’s producer inflation has now picked up for three months in a row after easing in late 2017.

On a month-on-month basis, the PPI rose 0.3 per cent in June, compared with 0.4 per cent growth in May.

Analysts polled by Reuters had expected June producer inflation would pick up to 4.5 per cent, buoyed by a recent recovery in global commodity prices.

China’s producer inflation picks up, buoyed by jump in commodity prices

Raw material prices jumped 8.8 per cent in June from a year earlier, compared with a 7.4 per cent increase in May.

The higher prices have helped fuel sharp gains in earnings, with profits at China’s industrial firms growing at a sizzling pace in May.

But much of the jump has been in prices of resources such as oil and coal and other raw materials, benefiting producers but raising input costs for manufacturers like exporters who are further along supply chains.

The intensifying trade dispute with the US did rattle China’s commodity markets last month, after both sides imposed tit-for-tat duties on each other’s imports on Friday.

The consumer price index (CPI) rose 1.9 per cent in June from a year earlier, in line with expectations for a slight pick-up from May’s gain of 1.8 per cent.

On a month-on-month basis, the CPI fell 0.1 per cent.

The core consumer price index, which strips out volatile food and energy prices, was unchanged at 1.9 per cent in June.

The food price index rose 0.3 per cent from a year earlier, after ticking up 0.1 per cent in May. Non-food prices rose 2.2 per cent, compared with 2.2 per cent growth a month ago.

Prices of agricultural products in particular are expected to jump after Beijing imposed tariffs on imports of US soybeans and other products used to feed its huge livestock sector.