Jun 09, 2021 09:03 PM

China’s Factory Inflation Jumps Most in Almost 13 Years as Commodity Prices Surge

Surging commodity prices fueled inflation in China in May, with factory-gate prices jumping the most in almost 13 years and consumer prices accelerating at the fastest pace since September, government data released Wednesday show.


The producer price index (PPI), which gauges changes in prices of goods circulated among manufacturers and mining companies, rose 9% year-on-year in May, up from 6.8% in April, according to data (link in Chinese) released by the National Bureau of Statistics (NBS). The increase is the biggest since September 2008 and exceeded the median estimate of 8.3% in a Caixin survey (link in Chinese) of economists.

The consumer price index (CPI), which measures changes in prices of a basket of consumer goods and services, increased 1.3% year-on-year (link in Chinese) in May, up from 0.9% in April, although the gain trailed the median estimate of a 1.6% rise in the Caixin survey.

The government has become increasingly concerned that accelerating inflation will hit consumers’ pockets and dent spending, while also hurting the profits of companies especially in what’s known as downstream industries which produce the finished goods sold to consumers. In May, the State Council put forward measures (link in Chinese) to stabilize commodity prices, including raising steel export tariffs and canceling tax rebates for some exports to ensure domestic supplies, and the National Development and Reform Commission and other relevant government departments warned they would show “zero tolerance” for speculation, hoarding and monopoly behavior in raw materials sectors.

The commission held a video conference on Tuesday requiring local governments to strengthen supervision and regulation of prices of “important products” including corn, wheat, pork and vegetables and to ensure adequate supplies, according to a statement (link in Chinese) posted on its website Wednesday.

The acceleration in the PPI was driven by surging prices of imported raw materials, a low base in 2020 when the index was falling, and stronger overall demand for goods as the economy continued to recover from the impact of the Covid-19 pandemic. A breakdown of the index showed prices charged by the crude oil and natural gas extraction sector doubled year-on-year, while the prices of the gasoline, coal and other fuel processing sector jumped 34.3% compared with 23.8% in April, and prices charged by the ferrous metals mining sector increased 48%, according to an NBS report (link in Chinese).

Higher commodity prices are now feeding through into consumer inflation. A breakdown of the CPI showed gasoline costs rose 22% in May year-on-year and airplane ticket prices jumped 32.3%. Those gains were offset to some extent by falling prices of pork, the most consumed meat in China, which is a key driver of consumer inflation. The hog-rearing industry is recovering from a severe bout of African swine fever that swept the country in 2018 and 2019, causing widespread shortages. In May, pork prices fell 23.8% year-on-year, the NBS report showed. But the cost of other food is increasing at a faster rate, with freshwater fish prices jumping 33.7% year-on-year and edible oil prices increasing 9.2%.

Even excluding food and energy costs, inflation is accelerating, with core CPI rising 0.9% year-on-year, the most since May 2020, and non-food CPI increasing 1.6%, the most in two years. Many consumer goods manufacturers have said they have no alternative but to put up prices because their profit margins are too small to allow them to absorb rising costs.

Some economists say that the PPI may now be close to its peak and that given the source of the inflation, which is coming mostly from imported commodities, policymakers are unlikely to take action such as increasing interest rates out of concern such a move could affect the economic recovery from the pandemic.

“The current inflation pressure in China is largely imported, which they (policymakers) could do little about,” economists at Macquarie Capital Ltd. wrote in a report after the data release. “Since the PPI spike is not due to the overheated domestic economy, policymakers would not react to it… Since the level of uncertainty is high, the most sensible policy stance for now is, wait-and-see.”

Contact editor Nerys Avery (

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