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China factory gate prices rise at fastest pace in 13 years
Customers shop for pork at a supermarket in Wuhan, Hubei province. Photo: CNS via Reuters

Factory gate prices in China rise at their fastest pace in 13 years, adding to pressure on Beijing’s leaders as they grapple with global rally in commodities and spectre of rising inflation

China’s producer price index (PPI) rose 9% in May, National Bureau of Statistics data showed on Wednesday, the biggest increase since September 2008.

In April, they gained 6.8%, with growth in negative territory for most of last year.

The recent leap, which last month came in ahead of economist forecasts, is fuelled by soaring commodity prices that have been supported by China’s strong industrial recovery but now threaten to squeeze profits as costs rise.

“There are some signs in the data that upward pressure on the factory-gate prices of consumer electronics may be starting to ease,” Julian Evans-Pritchard, senior China economist at Capital Economics, said.

Raw materials, which form a core part of China’s PPI index, rose sharply last month. NBS data showed that prices in the ferrous metal smelting industry rose 38% year-on-year, while those for coal mining soared 30%.

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 misinformation.

Iron ore, which in May hit its highest level of all time, tumbled on the news.

China’s consumer price index (CPI) rose 1.3 per cent in May, the most since September last year, but fell 0.2% month-on-month, the NBS said.

“While consumer price inflation continued to rise, it remains relatively contained,” Evans-Pritchard said.

The government has emphasised the need to prevent transmission to consumer prices, which remain low and have been driven by volatility in pork prices over the past year.

“Consumer prices continued to be affected by last year’s high pork prices, which started to come down in May last year,” Iris Pang, chief China economist at ING said.

“As such the high base effect from now will dissipate, and therefore we will see CPI edging higher from now on,” she added.

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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