China inflation: factory gate prices jump most in almost three years in March as producers pass on rising costs

Andrew Mullen
·4-min read

China’s factory gate prices rose the most in more than two years in March, as producers passed on rising raw material prices, data released on Friday showed.

The producer price index (PPI), which reflects the prices that factories charge wholesalers for their products, rose to 4.4 per cent in March from a year earlier, up from the gain of 1.7 per cent in February, the National Bureau of Statistics (NBS) said.

This was above expectations, with a Bloomberg survey of analysts predicting a rise to 3.6 per cent, after rising to the highest level since July 2018.

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China’s official consumer price index (CPI), meanwhile, rose to plus 0.4 per cent in March from a year earlier, from minus 0.2 per cent in February, the NBS said.

This was also above the Bloomberg survey median, which had predicted 0.3 per cent, and represented the first rise in three months.

Beijing has set a 2021 CPI growth target of around 3 per cent per cent, compared to around 3.5 per cent last year.

China’s core consumer inflation rate, excluding volatile food and energy prices, was 0.3 in March compared to a year earlier, up from a flat reading in February.

Food prices fell to minus 0.7 per cent in March, from 0.2 per cent in February

The price of pork – a staple meat on Chinese dinner tables – plunged 18.4 per cent compared to a year earlier, with the rate of decline expanding by 3.5 percentage points from the previous month.

Non-food prices rose 0.7 per cent in March year on year, up from a reading of 0.2 per cent in February.

From a month-on-month perspective, affected by factors such as rising international commodity prices, PPI rose by 1.6 per cent month-on-month, an increase of 0.8 percentage points from the previous month

Dong Lijuan

“From a month-on-month perspective, affected by factors such as rising international commodity prices, PPI rose by 1.6 per cent month-on-month, an increase of 0.8 percentage points from the previous month,” said Dong Lijuan, a senior statistician at the NBS.

“From a year-on-year perspective, due to the significant weakening of the negative impact of carry-over factors, the CPI went from a drop of 0.2 per cent in the previous month to a rise of 0.4 per cent.

“In terms of month-on-month, due to the seasonal fall in demand after the Spring Festival, the CPI went from an increase of 0.6 per cent month-on-month in the previous month to a 0.5 per cent decrease [in March].”

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Within PPI, the price of ferrous metal smelting and rolling processing industry rose by 21.5 per cent year on year, with the rate of increase expanding by 7.4 percentage points, while the non-ferrous metal smelting and rolling processing industry increased by 21.3 per cent year on year, up 9.2 percentage points. The chemical raw material and chemical product manufacturing industry rose by 11.4 per cent compared to a year earlier, an increase of 7.4 percentage points.

The oil and natural gas extraction industry rose by 23.7 per cent year on year, while the oil, coal and other fuel processing industries rose by 13.9 per cent.

“Consumer price inflation returned to positive territory last month, rising from minus 0.2 per cent year on year in February to plus 0.4 per cent last month. Most of the increase was the result of a surge in fuel price inflation from minus 5.2 per cent year on year to a plus 11.5 per cent, its highest since November 2018,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“This was partly due to a lower base for comparison following the slump in oil prices a year ago. But fuel prices rose a solid 6.4 per cent month on month last month. This more than offset a further fall in food price inflation from minus 0.2 per cent year on year to minus 0.7 per cent, largely due to a deeper contraction in pork price inflation from minus 14.9 per cent year on year to minus 18.4 per cent.”

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