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China factory prices rise as industries recover from pandemic

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China's industrial sector is recovering after the slump induced by the coronavirus pandemic./AFP
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Mar 10, 2021 - 05:59 AM

BEIJING, CHINA — Factory prices in China rose in February at the fastest pace in more than two years, official data showed Wednesday, as the country’s vast industrial sector recovered from a coronavirus-induced slump.

The producer price index (PPI), which measures the cost of goods at the factory gate, rose 1.7 percent last month according to data from the National Bureau of Statistics, exceeding analysts’ expectations.

China’s PPI had risen for the first time in a year in January, and February’s rate was the fastest since November 2018.

Analysts expect an increase in global commodity prices to lift inflation further in the world’s second-largest economy in the coming months.

NBS senior statistician Dong Lijuan said prices for petroleum-related industries continued to rise due to the sustained “upward trend of international crude oil prices”.

Dong added there was a rise in domestic demand and continued growth in international metal commodity prices as well, pushing up prices in metals industries.

“Manufacturing input costs have also been pushed higher by rising prices for electronics components, particularly semiconductors, as well as factors such as rising shipping costs due to container shortages,” IHS Markit Asia-Pacific chief economist Rajiv Biswas told AFP.

Consumer prices, on the other hand, fell 0.2 percent in February, slightly less than analysts expected, dragged partly by food prices.

Pork prices were 14.9 percent lower than in the same period last year, when the cost of the staple meat soared after China’s herds were ravaged by African swine fever.

But it is unlikely the recent period of consumer price deflation will persist, said Capital Economics senior China economist Julian Evans-Pritchard, who added that the drop in food inflation was caused by shifts in timing of the Lunar New Year.

China’s economy is set for a strong comeback this year, with Beijing setting a modest growth target of above six percent and analysts predicting a higher figure.

Consumer inflation is also expected to increase given the government’s target of a three percent rise for 2021.

Nomura chief China economist Lu Ting said that mass vaccine rollouts across the world and fiscal stimulus programmes in many developed economies with low interest rates meant commodity prices could rise further in the next few months.

“China is heavily dependent upon energy and commodity imports, so a surge in the prices of these products will have a material impact on China’s inflation, especially PPI inflation,” Lu warned in a market note.

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