China's factory inflation risks build as producers pass on costs

China’s inflation risks are building as producers pass on higher costs to consumers, reigniting a debate over whether the central bank has scope to ease monetary policy to support a weakening economy and potentially adding to the pressure on global consumer prices.

The producer price index climbed 13.5 per cent from a year earlier, the fastest pace in 26 years and above economists’ median forecast for a 12.3 per cent gain, data from the National Bureau of Statistics show Wednesday. 

The consumer price index rose 1.5 per cent, the highest since September 2020 and exceeding the projected 1.4 per cent gain. Producer prices in China have been rising rapidly in the past few months, first due to the global commodity price rally and then output curbs caused by a power crunch. Consumer inflation is also starting to pick up as weather-related supply problems push up food prices and manufacturers pass on higher costs to retailers. 

The data “implies broad-based inflation pressure on both the production side and the consumer side,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. “Inflationary pressure and the more hawkish stance of monetary policy in other major economies will likely limit China’s room to maneuver for monetary easing.”