China, the world’s second-largest economy, saw its producer price index (PPI) rise at the fastest rate in three and a half years in April. However, the consumer price index (CPI) declined 0.3% month-on-month in April, lower than the 0.2% contraction expected by market analysts, and only increased by a modest 0.9% on an annual basis, highlighting inflationary fears.
The National Bureau of Statistics reported on Tuesday that China’s producer price index (PPI), a gauge of industrial profitability, increased 6.8% last month from the same time a year earlier. April’s growth was faster than the 6.5% increased forecast by market analysts and higher than the 4.4% increase recorded in March.
Raymond Yeung, chief China economist at Australia & New Zealand Banking Group (OTC:ANZBY) Ltd said that the widening gap between China’s PPI and CPI “suggests an uneven recovery of the economy,”
“Despite the commodity boom, the service sector has yet to catch up… wages are lagging and the People’s Bank of China (PBOC) will likely keep its policy stance ‘largely neutral,'”
Commodities Boom Hurting China
As the world’s largest exporter, China is feeling the impact of the commodities boom. Driven by rising global demand and shortages in supply. China’s trade has rebounded as exports surged. However, there are fearsthat this could change.
The leap in producer prices included a whopping 85.8% surge in oil and natural gas extraction from the same time the year previous. Meanwhile, ferrous metal processing increased 30% on an annual basis.
The concern is that as manufacturers start passing on the higher costs to retailers, prices will rise. Consumers around the world may well see some price rises in the coming months as the global chip shortage affects top export goods such as home appliances, computers and cars.
China has stated that it intends to keep its consumer inflation at around 3% in 2021. Meanwhile, The People’s Bank of China is attempting to scale back the stimulus it pumped into the Chinese economy to combat the impact of the pandemic last year.
