China’s factory price growth quickens

    China’s factory price growth quickens
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    GLOBAL BUSINESS

    It adds to the business and the broad economic pressures

    A woman works at the Xunxi plant, which is a subsidiary of Chinese e-commerce giant Alibaba, during a media tour in Hangzhou, Zhejiang Province, China. Photo: REUTERS / FILE

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    A woman works at the Xunxi plant, which is a subsidiary of Chinese e-commerce giant Alibaba, during a media tour in Hangzhou, Zhejiang Province, China. Photo: REUTERS / FILE

    China’s factory gate inflation in July rose faster than last month and exceeded market expectations, adding pressure to an economy that is losing momentum as businesses face high raw material costs.

    The world’s second-largest economy is on track to expand by more than 8% this year, but analysts say demand for the coronavirus has peaked and is projected to grow modestly amid supply chain bottlenecks and epidemics of the Covid-19 Delta variant.

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    The Producer Price Index (CPI) increased by 9.0% compared to the previous year, corresponding to the highest level recorded in May, the National Bureau of Statistics (NBS) said on Monday. Analysts in a Reuters poll expected the BTI to rise by 8.8%, unchanged from June.

    Consumer inflation slowed slightly, the data showed, giving policymakers room to act if needed. China’s economy has largely recovered from the turmoil caused by the Covid-19 pandemic, but expansion is losing momentum as businesses face increasing pressure due to higher commodity prices and global supply chain congestion.

    “We believe that internal inflationary pressures are largely under control and Beijing is unlikely to overreact to the expected July inflation figures,” Nomura analysts wrote in a note.

    “Instead, we expect Beijing to maintain its unique ‘targeted tightening + universal relaxation’ policy mix for the rest of this year.”

    China reduced the amount of cash its banks must hold as reserves in July, releasing about 1 trillion yuan ($ 154.40 billion). Many analysts expect a new cut later this year.

    The worldwide spread of the most contagious Delta variant of the virus and new outbreaks in the home, in addition to the recent heavy rains and floods in some Chinese provinces, have also disrupted economic activity.

    “The pandemic has worsened and caused more disruption to the global supply chain,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

    BTI, a benchmark for a country’s industrial profitability, rose 0.5% on a monthly basis, accelerating from a 0.3% rise in June.

    Higher crude oil prices and increased demand for coal as China faces heatwaves have pushed up prices, NBS official Dong Lihuan said in a statement released alongside the data.

    Prices in the coal mining and washing and ferrous metals industries rose by 45.7% and 54.6% in July, respectively, on an annual basis.

    China’s “zero tolerance” policy on Covid cases is likely to put further pressure on the supply chain and inflationary pressures may persist in the second half, Zhang said.

    China reported 125 new cases of Covid-19 on the mainland as of August 8, with most local infections in central Henan Province and eastern Jiangsu Province.

    Uncertainties caused by the new outbreak in China and government response measures have led Goldman Sachs and Barclays analysts to recently revise their forecasts for the third quarter of growth.

    The country’s export growth slowed unexpectedly in July, with companies citing additional pressure from high raw material costs. China, a leading consumer of steel for both coal and iron ore, has stepped up efforts to mitigate rising commodity prices that have squeezed manufacturers’ margins, including stepping up inspections on its trading platforms and trading platforms. . Dalian iron ore futures fell 13.1% in July, the sharpest drop since February 2020.

    A separate NBS statement showed that the Consumer Price Index (CPI) rose 1.0% in July from a year earlier, up from 1.1% in June and below the government target of about 3% this year.

    The Reuters poll predicted that the index would increase by 0.8%. On a monthly basis, the CPI rose 0.3 percent, compared with a 0.2 percent increase indicated by the poll and a 0.4 percent drop in June.

    The key consumer price index, which eliminates volatile food and energy prices, stood at 1.3% year-on-year, up from 0.9% in June.

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