China’s wholesale inflation accelerated last month to its highest rate in 12 years, adding to the government’s headaches as it tries to rein in surging consumer prices, data reported yesterday showed.
The producer price index was up 10 percent last month over the same month last year, the highest rate since 1996, Xinhua news agency said, citing the government’s statistics bureau. The index measures the price of goods as they leave the factory.
Analysts have warned that rising costs for energy and raw materials would push up Chinese wholesale prices, squeezing thin profit margins for companies and adding to pressure for retailers to raise consumer prices.
The government is due to announce last month’s consumer inflation today.
Last month’s rise in the producer price index (PPI) exceeded analysts’ expectations and was a sharp jump over June’s 8.8 percent rate.
“It is perhaps still too early to conclude that PPI growth has peaked,” Sherman Chan, an economist for Moody’s Economy.com, said in a report to clients.
“The sharp acceleration in producer price inflation seen in recent months is a concern to policymakers, as this poses a strong upside risk to CPI [consumer price index] growth,” Chan said. “In the next few months, the authorities will likely further tighten monetary policy and impose price curbs to deal with this inflation risk.”
Beijing has been trying for a year to control surging consumer inflation. It is trying to raise farm output to bring down food costs and has imposed price controls on basic goods. Consumer inflation eased in June to 7.1 percent, a decline from a peak of 8.7 percent in February, but well above the official target of 4.8 percent for the year.
The price rises initially were blamed on shortages of grain and pork, but costs for labor, energy and a wide range of goods also are climbing. The government boosted state-set fuel prices in June to curb rising demand, adding to producer costs.
Producer prices for raw materials, fuel and power rose 15.4 percent last month over the same month last year, up from June’s 13.5 percent rate, Xinhua said.
Meanwhile, Xinhua cited the customs bureau in reporting that the country’s trade surplus fell 9.6 percent in the first seven months of the year compared with a year ago to US$123.7 billion.
Xinhua quoted unnamed analysts as saying the decline in the surplus was partly because of deliberate policies aimed at shrinking it, but added the rising prices of imported energy and resources also contributed to the decline.
The surplus for last month alone was US$25.3 billion, a decline of about US$900 million from the same month a year ago, Xinhua reported.
The surplus has been a source of bitter friction with major trading partners like the US and the EU.
However, in recent months China’s exports have weakened noticeably, mainly because of the slowdown in the global economy, but also because of the gradual strengthening of the yuan.
As a result, Chinese policymakers have quietly adopted measures to help the nation’s exporters.
Beginning this month, China improved tax incentives for exporters of some textile and apparel products, moving to support companies struggling amid weakening foreign demand.
Observers have also said a recent slowdown in the rate at which the yuan is strengthening against the US dollar may reflect an attempt to keep Chinese export prices competitive.
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