The price of goods leaving China’s factories has risen at its fastest pace since the financial crisis, piling pressure on policymakers as they grapple with the effects of a global commodity price rally.
China’s producer price index added 9 percent in May, data from the National Bureau of Statistics showed on Wednesday, its biggest year-on-year increase since September 2008 and higher than economists’ forecasts.
The index has been rising sharply in recent months — gaining 6.8 percent in April — driven by an international rally in commodities markets as well as a low base effect after being in negative territory for most of last year.
While consumer price increases remain low in China, the country’s soaring producer prices are set to increase costs for businesses and exporters at a time of mounting concerns over higher inflation in the US and around the world.
“Rising costs everywhere, in particular in China, will be adding to global inflationary pressures,” said Dariusz Kowalczyk, an economist at Crédit Agricole. “I think we are going to live with higher inflation globally, and what’s happening in China will contribute to that”.
Chinese PPI has been pushed higher by commodities and raw materials, which form a core part of the index. NBS data showed that prices in the ferrous metal smelting industry rose 38 percent year on year, while those for coal mining added 30 percent.
China’s strong industrial recovery, which drove record levels of steel production, has stoked a wider rise in commodity prices that is also supported by expectations of a global recovery and US stimulus. But the price increases have begun to alarm policymakers in China.
The Chinese government’s economic planning agency last month warned of “excessive speculation” in commodity markets and said it would crack down on monopolies and false information. Iron ore, which in May hit its highest level ever, tumbled on the news.
A state council meeting last month, chaired by Li Keqiang, China’s premier, also emphasized the need to prevent spillover into consumer prices, where increases have remained low, and have been driven by volatility in the cost of pork over the past year. Economists have said that high costs will instead squeeze profit margins at businesses, especially those selling directly to consumers.