World inflation scare is coming as Chinese exporters lift prices

[SHANGHAI] Chinese exporters are beginning to lift prices on everything from swimsuits to air-conditioners, as the Iran war drives up oil-linked input costs. This signals that global consumer inflation is likely to accelerate.

More than a dozen categories of household goods experienced sharp year-on-year price increases in March, customs data compiled by Trade Data Monitor and analysed by Bloomberg showed. This ended a sustained decline over the past few years that had helped restrain global inflation.

“I held off raising prices for as long as I could in March, but in the end I had no choice,” said Pang Ling, a sales manager at a Shanghai-based medical catheter-maker. “I panicked watching plastic costs climb almost every single day.”

That stress is rippling across a raft of sectors, with exporters also raising prices on swimsuits, ski-suits and women’s trousers – all reliant on synthetic fibres such as polyester – by low to mid-single-digit percentages in March.

Their suppliers hiked fibre prices as frequently as daily during the month.

Other products that were reliant on rubber, plastic and oil-derived chemicals also faced spikes.

Syringes were one of the hardest hit products, with prices up as much as 20 per cent in March. Meanwhile, home appliance prices were getting squeezed on two fronts as manufacturers also faced higher metal and semiconductor costs.

For almost three years, China’s export prices had been falling due to overcapacity and intense competition, helping to contain inflation in economies from the US to Europe.

Those declines shaved an estimated 0.3 to 0.5 per cent off headline inflation in advanced economies in recent years, said Capital Economics.

SEE ALSO

PBOC injects cash despite flush liquidity, fuelling bond rally

China’s global EV push reflects its ambition - and harsh economics at home

China scales back fiscal stimulus in first month of war in Iran

As recently as February, cheaper Chinese goods acted as a restraint on price pressures in economies such as the UK.

As Chinese manufacturers have begun passing on higher costs, that disinflationary buffer is weakening.

Bloomberg Economics estimated that above-3-per-cent inflation in 2026 is “back in play” across the euro area, the US and the UK as a result of the energy cost spike.

This is a huge reversal from before the Iran war, when price growth in major economies was headed back towards target.

That cost pressure has already seen Chinese producer prices return to growth for the first time in more than three years, and Goldman Sachs expects overall export prices to turn positive as soon as March.

Official data to be released around Apr 25 will confirm whether that is the case.

So far, the full brunt of higher export prices has not reached consumers, and inflation has only ticked up modestly in most economies.

Many goods shipped in March were likely ordered weeks or even months earlier, meaning that they would not reflect rising input costs. And exporters in some sectors such as toys even cut prices in March, due to fierce competition and weak demand.

This suggested that export-price inflation is set to accelerate in the coming months, especially in the absence of a resolution to the Iran conflict.

A 10 per cent increase in the cost of oil typically lifts Chinese export prices by an average 50 basis points over the first year, with a peak four to five months from the initial shock, based on Goldman Sachs’ estimates.

China’s price rise lags major exporters

Even so, Standard Chartered’s Ding Shuang noted that China’s export prices will probably rise less than those of other major exporters, meaning that the country could absorb part of the global inflation shock.

He added that weak domestic consumer spending will put a lid on overall inflation and wage growth in China, while competition will continue to limit how much companies can raise their prices.

But, the rest of the world is bracing for a price shock. Pang, who has already increased prices by 7 per cent on new orders from US-based clients, is set to travel there this week to negotiate further hikes.

The prices of polyvinyl chloride, her company’s main input, surged as much as 80 per cent in March from pre-war levels, and remained about 50 per cent higher even after a modest pullback in the past two weeks.

“I’m so tired of not knowing what tomorrow will bring,” Pang said. “The whole situation has put me on an emotional rollercoaster every day.” BLOOMBERG