BEIJING – China’s factory inflation in July rose at a faster pace than the previous month and beat market expectations, adding to tensions in an economy losing recovery momentum as companies struggle with the high costs of raw materials.
The world’s second-largest economy is on track to expand more than 8% this year, but analysts say peaking demand for coronavirus has peaked and they forecast moderate growth over the next year.
The producer price index (PPI) grew 9.0% over the previous year, matching the maximum observed in May, the National Statistics Office (NBS) said in a statement on Monday. Analysts in a Reuters poll had expected PPI to rise 8.8%, unchanged from June.
China’s economy has largely recovered from the disruptions caused by the COVID-19 pandemic, but the expansion is losing steam as businesses face increasing tensions over higher commodity prices and collars. bottle of the global supply chain.
The global spread of the more infectious Delta variant of the virus and new outbreaks of cases at home, in addition to recent rains and floods in some Chinese provinces, have also disrupted economic activity.
“The pandemic worked and caused more disruptions in the global supply chain,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
PPI, a benchmark indicator of a country’s industrial profitability, rose 0.5% monthly, accelerating from a 0.3% rebound in June.
Higher crude oil prices and increased demand for thermal coal as China copes with hot weather helped drive prices up, said Dong Lijuan, an NBS official, in a statement released alongside the data.
Prices in the coal mining and washing and ferrous metal mining industries increased 45.7% and 54.6% in July year-on-year, respectively.
China’s “zero tolerance” policy on COVID cases will likely put more pressure on the supply chain, and inflationary pressure may persist into the second half, Zhang said.
China reported 125 new COVID-19 cases on the mainland by Aug. 8, with most of the local infections in central Henan province and eastern Jiangsu province.
The uncertainties caused by the new outbreak in China and the government’s response measures led analysts at Goldman Sachs and Barclays to recently revise their growth forecasts for the third quarter downward.
The country’s export growth unexpectedly slowed in July, and companies cited additional pressure from high raw material costs.
China, as the leading consumer of both coal and iron ore steel, has stepped up efforts to control rising raw material prices that have reduced manufacturers’ margins, including increased inspections on rigs. trade and the release of state reserves.
Dalian iron ore was on track to end July with a monthly loss of around 10%, the steepest since February 2020.
A separate statement from the NBS showed that the consumer price index (CPI) in July rose 1.0% from a year earlier, compared with a 1.1% increase in June and below the government’s target of about 3% this year.
The index was expected to rise 0.8%, according to a median forecast from a Reuters poll.
On a monthly basis, the CPI rose 0.3%, compared with a 0.2% increase noted by the Reuters poll and a 0.4% drop in June.
The core consumer price index, which excludes volatile food and energy prices, stood at 1.3% year-on-year, down from a 0.9% increase in June.
(Reporting by Liangping Gao and Gabriel Crossley Edited by Shri Navaratnam)