China Producer-Price Inflation Is Fastest Since 1996

By Nipa Piboontanasawat
Enlarge Image/Details

Aug. 11 (Bloomberg) -- China's producer prices climbed at the fastest pace since 1996 on energy and commodity costs, underscoring the risk of a rebound in consumer-price inflation.

Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said today, after gaining 8.8 percent in June. That was more than the 9 percent median estimate of 15 economists surveyed by Bloomberg News.

China's government has tweaked policies toward stimulating growth rather than cooling prices after inflation cooled from February's 12-year high as food-price gains eased. Today's number may make policy makers more cautious after they loosened bank lending quotas, raised tax rebates for some exporters and halted gains by the yuan.

Producer prices pose ``a strong upside risk to consumer- price inflation growth,'' said Sherman Chan, a Sydney-based economist at Moody's Economy.com. ``In the next few months, the authorities will likely further tighten monetary policy and impose price curbs.''

The yuan traded at 6.8648 as of 11:39 a.m. in Shanghai, from a close of 6.8588 on Aug. 8.

The surge in producer prices isn't likely to flow through to consumer prices ``soon'' because of the extremely competitive market for goods, Zhang Liqun, a senior research fellow at the State Council's Development Research Center, said in an e-mailed statement.

Zhang said the gain was the biggest since 1996. Bloomberg data goes back to 1999.

Consumer Goods

So far, manufacturers are absorbing most of the higher prices, rather than passing them on to consumers. Producer prices of consumer goods rose 4.6 percent in July from a year earlier, the least in six months.

Consumer prices rose 7.1 percent in June from a year earlier, down from 8.7 percent in February.

China raised last month lending quotas for banks and increased tax rebates on exports of textiles and garments as export growth cooled. The yuan has fallen 0.2 percent against the dollar this quarter after gaining 4.2 percent in the first quarter and 2.3 percent in the second.

The world's fourth-largest economy expanded 10.1 percent in the second quarter from a year earlier, down from 10.6 percent in the three months through March.

The producer price of crude oil jumped 41 percent in July from a year earlier after rising 36 percent in June, the statistics bureau said. Ferrous metals climbed 31 percent after gaining 29 percent.

Fuel, Electricity prices

China raised state-controlled fuel and electricity prices in June and July.

Tumbling commodity prices have increased the likelihood of producer-price inflation slowing in coming months.

Crude oil fell below $115 a barrel on Aug. 8 for the first time since May. The Bloomberg Constant Maturity Commodity Index dropped 3.3 percent to 1,420.62, the lowest since March 20.

``The recent sharp falls in many commodity prices suggest that these upstream inflation pressures may be at a peak,'' said Mark Williams, a London-based economist at Capital Economics Ltd.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net