China's factory gate prices jump

Factory prices continued to push higher in China, rising at their fastest rate since October 2017, official data showed on Tuesday.

The producer price index rose 6.8% in April year-on-year, China’s National Bureau of Statistics said, a significant increase on March’s 4.4% jump and marginally above forecast. Most analysts were looking for growth of around 6.5%.

It was also the fourth straight month of increases.

China is experiencing a surge in demand, as the wider global economy recovers from the Covid-19 pandemic.

Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said commodities were the "clear driver" behind the April data.

"The contribution from oil, chemicals and processing of metals all picked up. The main non-processing manufacturing goods prices available at this stage remained in deflation, but only mildly so. Survey data, combined with the lead from commodities prices, strongly suggest inflation here will pick up robustly in coming months," she said.

"We think PPI headline inflation will continue to rise faster than implied, purely by base effects in coming months, as the increase in sport prices feeds through."

China’s consumer price index was more subdued in comparison, rising by 0.9% in April compared to 0.4% in March. The headline was held back by weaker food prices, with food inflation dropping 0.7% year-on-year. Services inflation improved, however, rising to 0.7% from March’s 0.2%.

Beamish said: "We’ve been watching to see when services inflation would start to re-anchor with its fundamental drivers and with survey data, and it looks like that process is now happening.

"Food inflation is now up in the air thanks to the re-emergence of swine fever, but prices continue to plummet, for now, as people try to shift their stock before the disease spreads. That will eventually turn around. Energy inflation will continue rising sharply, and services inflation should also remain on an upward path, taking the headline with it."