China’s factories jolt back to inflation on Iran war price shock

[BEIJING] China’s factory-gate prices rose for the first time in 3-1/2 years in March, official data showed, in an early sign that the Middle East conflict is feeding cost pressures into the world’s second-largest economy.

Economists warned that a move to inflation driven by higher costs rather than stronger demand could complicate policy decisions, crimping growth and limiting scope for stimulus.

The producer price index increased 0.5 per cent from a year earlier, data from the National Bureau of Statistics showed on Friday (Apr 10), ending a 41-month streak of declines. The reading outpaced an estimated 0.4 per cent gain in a Reuters poll.

Producer prices surged in energy-intensive industries, with the non-ferrous metal mining and beneficiation sector recording a 36.4 per cent jump last month and the non-ferrous metal smelting and rolling processing sector posting a 22.4 per cent rise, as higher oil prices pushed up factory-gate costs.

Imported inflation leaves firms with little buffer if they are unable to pass on higher input costs, squeezing margins, investment and hiring, economists said.

Meanwhile, consumer prices rose at a slightly slower pace. The consumer price index (CPI) ticked up 1 per cent year on year, compared with a 1.3 per cent rise in February. Economists polled by Reuters had expected prices to climb 1.2 per cent.

On a monthly basis, CPI fell 0.7 per cent, compared with forecasts for a 0.2 per cent decline and following a 1 per cent rise in February.

The emergence of largely imported price pressures comes at a delicate time for an economy that remains fragile at home and increasingly exposed to weakening external demand.

Domestic car sales fell for a sixth straight month in March, as rising fuel prices dampened demand for petrol-powered models while electric vehicle sales continued to feel the impact of reduced incentives.

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The trend underscores a growing dilemma for policymakers. While the central bank has signalled scope for further easing to support growth, firmer headline inflation could limit aggressive monetary stimulus if pressures spread beyond energy and upstream industries. China needs to juggle rising inflation with growth risks, a central bank adviser said in late March.

Core CPI, excluding food and fuel, grew 1.1 per cent year on year, versus a 1.8 per cent rise in February. China has capped domestic fuel price hikes to cushion the blow of surging oil prices. REUTERS