China factory gate prices jump as commodities rally

China’s factory gate inflation rose at its fastest rate in nearly four years last month, data showed yesterday, as a strong recovery in the world’s number two economy sees a surge in demand for key commodities such as iron ore and copper. The forecast-beating jump in prices comes as global investors grow increasingly worried that the blast in economic activity expected to be caused by the easing of lockdowns and reopening of economies could force central banks to wind back their ultra-loose monetary policies.

Having largely contained the coronavirus crisis early last year, China has enjoyed months of improvement and was the only major economy to expand in 2020. The recovery has helped the country’s manufacturing sector bounce back strongly and its voracious appetite for commodities return. That has pushed the price of iron ore and copper, which are used in a wide variety of goods, to record highs.

The producer price index (PPI), which measures the cost of goods at the factory gate, rose 6.8 percent on-year in Aprils, the National Bureau of Statistics said, the highest since October 2017 and well up from the previous month’s 4.4 percent. Analysts had predicted strong growth owing to the low corresponding figures for last year, when much of the country was closed to contain the coronavirus.

“In April, domestic industrial production recovered steadily, the prices of international commodities such as iron ore… rose, and prices in the production sector continued to rise,” said senior NBS statistician Dong Lijuan. The key driver remains the rally in global commodity prices, said Capital Economics in a note, adding that supply shortages may persist for a while longer – keeping producer prices elevated in the near-term.