The latest inflation figures released from China last week showed that producer prices advanced to a six month high in July. The gains came on the back of rising commodity prices.
It also underlined the pressure on the export sector amid rising trade wars between China and the United States.
The annual CPI or consumer price index was also seen rising. Food prices rose sharply driving CPI higher. However, the retail price pressures were seen to be modest as China’s policymakers focus on ways to support the economy that is seen to have moderated in growth.
China’s PPI which measures the price pressures at factory gate was seen rising 4.7% on an annual basis in June. This was higher than the forecasts and showed an increase from 4.1% that was registered in May.
Producer prices in China were seen rising for three months consecutively. This came following a decline in PPI around the same time last year. PPI had fallen 0.3% in June 2017.
Economists forecast that producer prices index would rise 4.5% on an annual basis in June. The basis for the increase was due to the pickup in the global commodity prices.
Price pressures were seen due to an increase in oil and gas production and also included other sectors such as mining, metals and chemicals.
Due to higher oil prices, China had increase fuel prices since December 2016. The higher fuel prices helped to push energy prices higher including pushing the pace of growth in the industrial sector.
Despite the uptick in PPI, economists note that the recent rebound in producer prices was more sharply driven due to higher fuel prices.
While higher fuel and steel prices pushed producer prices higher, there was significant impact on the import. The input costs for manufacturers increased.
Various surveys already point to the fact that manufacturers in the export sector are likely to witness a drop in export orders. This comes due to the uncertainty surrounding trade policies imposed by the U.S. administration.
While PPI surged strongly, consumer prices rose at a modest pace. The headline CPI was seen rising 1.9% on an annual basis in June. This was in line with expectations and consumer prices increased from 1.8% registered in May.
Compared to a monthly basis, CPI was seen falling 0.1%.
Excluding the volatile food and energy prices, China’s core CPI was seen to be unchanged, rising at 1.9% in June.
Food price index was seen advancing 0.3% compared to a year ago and showed a modest gain from May’s increase of 0.1%.
Meanwhile, non-food prices increased 2.2% on the month.
Investors are seen to be closely watching the data out of China in anticipation that the trade wars are likely to hurt China’s growth.
U.S. companies based in China have already warned that the price of goods manufactured in China could increase.
This comes as China is seen targeting inflation growth of 3.0% for 2018. This was the same target that was set the year before.
The U.S. administration has been imposing tariffs on goods imported from China over the past few months. This resulted in the Chinese administration hitting back with retaliatory measures. However, by all measures the trade wars are expected to hurt both China and the U.S. economies respectively.
