China’s Producer Prices Jump Despite Efforts to Cool Commodities Costs

China’s Producer Prices Jump Despite Efforts to Cool Commodities Costs

Rise in factory-gate prices matches highest level in more than 12 years

China’s factory-gate prices rose at an unexpectedly fast clip in July, matching the highest level in more than 12 years as crude oil and coal prices soared—though economists say the price pickup is unlikely to last.

China’s producer-price index rose 9.0% from a year earlier, the National Bureau of Statistics said Monday—faster than June’s 8.8% year-over-year increase and the 8.8% gain forecast by economists polled by The Wall Street Journal.

July’s increase matched May’s 9.0% year-over-year jump, which marked the biggest surge in producer prices since September 2008.

On a month-over-month basis, China’s producer prices rose 0.5% in July, faster than June’s 0.3% advance.

The price increases came despite measures taken by Beijing in recent months to cool soaring commodity prices, including restricting steel exports and cracking down on speculative behavior.

Fortunately for Chinese policy makers, the high producer prices haven’t fed through to consumers.

China’s consumer-price index rose 1.0% from a year earlier in July, down from June’s 1.1% gain, kept in check by food prices that fell 3.7% in July from a year earlier, compared with June’s 1.7% drop.

Nonfood prices rose by 2.1% in July, up from June’s 1.7% advance, lifted by soaring oil prices and higher hotel and travel expenses during the summer months, China’s statistics bureau said.

More recently, however, domestic outbreaks of the Delta variant of Covid-19 have prompted authorities to lock down cities, dampening domestic demand. Together with a recent easing in global oil prices, economists expect factory-gate price pressures to moderate again.

The July data likely didn’t factor in the impact of local Chinese authorities’ pandemic measures toward the end of the month, which have included cancellations of large events, travel restrictions and more stringent quarantine rules, said Xing Zhaopeng, an economist with ANZ.

As a result, Mr. Xing said, both producer and consumer prices will likely cool in August and September and enable Beijing to turn its focus to slowing economic growth amid the spread of the Delta variant.

Using a more dovish tone from Chinese officials, Ning Jizhe, the head of China’s statistics bureau, said Friday that domestic demand was struggling with weaker momentum.

On Sunday, China’s National Health Commission tallied up 125 new cases of symptomatic infections, 94 of which were locally transmitted, the highest daily total during the current outbreak.

In response, at least two global investment banks, Goldman Sachs and Morgan Stanley, have lowered their forecasts for China’s economic growth. Other economists say they are likely to make their own downward revisions to reflect Delta’s impact on the world’s second-largest economy next Monday, when China’s statistics bureau releases a batch of economic indicators for July.

China’s gross domestic product grew 18.3% and 7.9% in the first and second quarters of the year, respectively, compared with the same periods a year earlier—putting the economy in a good position to meet policy makers’ full-year growth target of 6% or higher.

Even so, with a pronounced slowdown likely in the second half of the year, more policy support may be needed.

Mr. Xing, the ANZ economist, pointed to an unspent sum equivalent to about $3 trillion, or 20 trillion yuan, in this year’s fiscal budget, which he argued would play a central role in underwriting infrastructure projects that could help shore up growth through the end of the year

On monetary policy, Mr. Xing expects China’s central bank to release more liquidity by reducing banks’ required reserves and to lower financing costs for struggling businesses by cutting certain lending rates.

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