China factory inflation higher than expected as oil prices bite

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China’s factory-gate inflation was higher than expected in March, official data showed Monday, as Russia’s war on Ukraine pushes up oil prices and a domestic COVID-19 resurgence strains food supplies.

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The producer price index (PPI) -- measuring the cost of goods at the factory gate -- grew 8.3 percent on-year, National Bureau of Statistics (NBS) figures showed.

This was up on a monthly basis, and slightly more than a Bloomberg poll of economists expected.

“Geopolitical and other factors have pushed global commodity prices to continue increasing, driving the prices of oil, non-ferrous metals and other related industries to rise further domestically,” NBS senior statistician Dong Lijuan said in a statement.

China’s consumer price index (CPI), a key gauge of retail inflation, also rose more than expected, by 1.5 percent on-year in March, the NBS said.

Although consumer demand eased after festive periods earlier in the year, some food prices have picked up due to “rising international prices of wheat, corn and soybeans” and domestic COVID-19 outbreaks, Dong said.

This comes as world food prices hit an all-time high in March following Russia’s invasion of Ukraine, an agricultural powerhouse, according to a UN agency.

Russia and Ukraine make up a massive share of exports in major commodities such as wheat, vegetable oil and corn.

“CPI inflation could rise further in April as households across China have been stocking up on food and other necessities after taking lessons from the fallout of Shanghai’s lockdown,” Nomura’s chief China economist Lu Ting told AFP.

As the financial hub locked down almost entirely in recent weeks, residents had trouble getting groceries while COVID-19 controls snarled supply chains leading to the rest of the country.

“Due to lockdowns and transport disruptions in northeast China, the largest grain production base in China, this year’s spring farming may have been delayed and the risk of food shortage may rise in the second half,” Lu added.

This piles pressure on the worsening global food shortage caused by the military conflict in Ukraine, he said.

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