China’s factory gate prices rally 9 percent in May, highest in 12 years

China’s consumer inflation remained at a stable level in May, with a 1.3 percent gain year-on-year, while factory gate prices rallied 9 percent, the fastest annual pace in over 12 years in May, on high international bulk commodity prices, official data revealed on Wednesday.

China’s consumer price index (CPI), a main gauge of inflation, went up 1.3 percent in May year-on-year, edging down 0.2 percentage points from the previous month, according to figures unveiled by the National Bureau of Statistics (NBS) on Wednesday.

The food price fell 1.7 percent from the previous month, contributing about 0.31 percentage points to CPI contraction, Dong Lijuan, a senior statistician with the NBS said.

Along with a rapid recovery of live hog output and sufficient market supply, the price of pork fell by 11.0 percent from April, down 21.4 percent year-on-year.

Non-food price rose 1.6 percent year-on-year with the price of air ticket, gasoline and diesel jumping 32.3 percent, 22.0 percent and 24.2 percent according to the NBS.

The producer price index (PPI) rallied 9 percent in May year-on-year, beating analysts’ forecast of 8.5 percent, which also marks an increase of 1.6 percent from April.

The rising manufacturing material prices of international crude oil, iron ore, non-ferrous metals and other bulk commodity prices together with the domestic demand pushed by China’s work recovery make a considerable contribution to PPI upsurge in April, Dong said.

On a monthly basis, the PPI reading was up 1.6 percent in May from the previous month.

Reflecting on the monthly gain, Dong said the cost of ferrous metal smelting rose 6.4 percent in May, while the rising price of copper, aluminum and other non-ferrous metals on International market made the domestic non-ferrous industry rise 4.4 percent.

Tian Yun, former vice director of the Beijing Economic Operation Association told Global Times on Wednesday that the rise of PPI in May was mainly caused by the increasing production cost brought about by surging price of bulk commodities.

“China’s production raw materials including various ores, gas and oil and even agriculture products are heavily depending on import,” said Tian.

He also noted that the large amount of currency that released by major economies raised the international price of bulk commodities and raised the production cost.

Some downstream industries may have to carry more burden given the high gate price of industrial materials, which hinders the export trade, experts warned.

“The increasing cost may prevent the export companies from taking oversea orders,” said Tian.

In addressing the stability in the annual inflation rate, China’s National Development and Reform Commission held a video conference on Tuesday which called for the establishment a price control mechanism and market price supervision mechanism to prevent abnormal price fluctuations.

“The risk of inflation still exists as large economies worldwide are conducting shrinking currency policies,” Tian said.