PPI rises for second straight month

Employees work on the production line of an electronics company in Lianyungang, Jiangsu province. SI WEI/FOR CHINA DAILY

China's factory-gate prices rose for a second straight month in April, while consumer inflation picked up moderately, as higher global energy and commodity costs filtered through to the world's second-largest economy, officials and analysts said on Monday.

The stronger-than-expected readings, they said, reflect a continued improvement in China's price dynamics.

Data from the National Bureau of Statistics showed on Monday that China's producer price index, which measures factory-gate prices, rose 2.8 percent year-on-year in April, up 2.3 percentage points from March. The index returned to growth in March, ending 41 consecutive months of decline.

Dong Lijuan, an NBS statistician, said the stronger year-on-year PPI growth was mainly driven by higher global commodity prices and firmer demand in some domestic sectors, including those linked to rapidly growing computing power demand.

"Competition in the domestic market has become more orderly, as efforts to curb excessive competition continued to show results," Dong said.

On a month-on-month basis, the PPI rose 1.7 percent in April, up 0.7 percentage point from the previous month.

The pickup was also reflected in artificial intelligence-related manufacturing sectors, with prices in optical fiber manufacturing rising 22.5 percent month-on-month and prices for external storage equipment and components increasing 3.2 percent, the NBS said.

Feng Lin, executive director of research at Orient Golden Credit Rating International, said sustained global investment in AI -coupled with rapidly growing domestic demand for computing power — has continued to push up prices along the semiconductor industrial chain.

Given the continued transmission of global energy price fluctuations to producer prices, Feng said commodity price movements will remain an important factor affecting China's near-term PPI trend.

"China's PPI is expected to continue rising month-on-month in May, though the pace of increase will likely slow significantly. Year-on-year PPI growth may accelerate to around 3.5 percent," she said.

Consumer inflation also picked up moderately. China's consumer price index, the main gauge of inflation, rose 1.2 percent year-on-year in April, up from a 1.0 percent increase in March, said the NBS.

Dong, the statistician with the bureau, said the CPI pickup was partly supported by stronger services consumption during the holiday period.

Food prices, meanwhile, declined 1.6 percent year-on-year in April, compared with a 0.3 percent increase in March. Pork prices fell 15.2 percent, with the drop 3.7 percentage points larger than in March.

To promote the stable operation of the pork market, the National Development and Reform Commission — China's top economic regulator — recently said it would support local governments in purchasing frozen pork for commercial reserves.

The core CPI, which excludes food and energy prices and is deemed a better gauge of supply-demand conditions, rose 1.2 percent year-on-year in April, the NBS said.

Despite the improving price trend, analysts cautioned that elevated energy prices may provide only short-term support for inflation, with their impact likely to be uneven.

Lynn Song, chief economist for China at Dutch bank ING, said producer input costs could continue to filter through to the broader economy if energy prices remain high.

"This may further strengthen the reflation narrative, while also adding pressure to growth," Song said.

Luo Zhiheng, chief economist and head of the research institute at Yuekai Securities, said imported cost pressures may intensify structural divergence among enterprises, with midstream and downstream businesses absorbing much of the pressure through squeezed profit margins.

Given the coexistence of imported inflation and insufficient effective demand, Luo said macro policy should remain well-calibrated and supportive.

"Monetary policy should maintain a moderately accommodative stance, while fiscal policy should provide targeted relief to affected midstream and downstream enterprises and low-income groups," he said.

zhangchenxu@chinadaily.com.cn