THE country’s factory gate prices rose at their fastest annual pace in over 12 years in May due to surging global commodity prices and a low base of comparison, while consumer prices increased for the third straight month but at a slower-than-expected rate.

The producer price index (PPI) increased 9 percent from a year earlier, the National Bureau of Statistics (NBS) said in a statement yesterday, driven by significant price increases in crude oil, iron ore and nonferrous metals. Analysts in a previous poll had expected the PPI to rise 8.5 percent after a 6.8 percent increase in April.

On a monthly basis, the PPI rose 1.6 percent, up from a 0.9 uptick in April.

Higher commodity prices and low bases last year could further drive up China’s producer price inflation in the second and third quarter, China’s central bank has said.

Prices for commodities including coal, steel, iron ore and copper, which affect the PPI, have surged this year, fueled by post-lockdown recoveries in demand and ample global liquidity.

Chinese policymakers have pledged to take measures to cool red hot commodity prices and prevent them being passed on to consumers. Soaring producer prices have yet to feed through to China’s consumer inflation, which remains mild and well below the government’s official target of about 3 percent.

NBS data also showed China’s consumer price index (CPI) rose 1.3 percent in May in annual terms, the biggest increase in eight months. That was still slower than analysts’ forecast for a 1.6 percent increase, after a 0.9 percent gain in April.

So far, the impact of higher metal prices has showed up mainly in upstream industries involved in the mining and processing of raw materials, while price increases in downstream industries like furniture and textiles have been minimal, according to an analysis by Bloomberg Economics.

The pass through from PPI to consumer prices has also been limited, given that the link between the two has weakened. Intense competition among smaller businesses, spurred by the rise of e-commerce, and weak domestic demand means China’s factories are absorbing rising input costs rather than passing them on to consumers at home.

The central bank is likely to avoid hiking interest rates in response to the inflation data and also keep liquidity in the banking system tightly balanced, economists say.

China’s economy has seen a strong rebound from a coronavirus-induced slump early last year. China’s gross domestic product expanded by a record 18.3 percent in the first quarter and many economists expect growth will exceed 8 percent this year.(SD-Agencies)