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Chinese factory inflation hits 13-year high

9 Sep 2021 11:54 AM

Factory inflation in China hit a 13-year high in August driven by higher raw material prices despite Beijing's attempts to cool it down, adding to pressure on manufacturers in the world's second-largest economy.

The National Bureau of Statistics said today that the producer price index rose by 9.5% on an annual basis in August, faster than expectations that indicated an increase of 9.0% in a Reuters poll and 9.0% in July, which was the fastest pace since August 2008.

The Chinese economy recovered strongly from the coronavirus recession last year, but recently lost steam due to the domestic virus outbreak, soaring raw material prices, tighter property restrictions and a campaign to reduce carbon emissions.

Commodity prices have been on a tear in recent months, hurting the bottom line of many middle and downstream factories. Coal prices in China rose to a record high on Tuesday on supply concerns as major coal regions began new rounds of safety checks. Also, profits in industrial companies in China have slowed for five consecutive months.

There are expectations that coal and metal prices will decline as construction activity declines amid restrictions on the real estate sector and slowing credit growth. The coal, chemical and metals industries led many of the price increases in August.

A separate statement by the National Bureau of Statistics showed that the consumer price index in August rose by 0.8% from a year earlier, compared with expectations for an increase of 1.0% and less than the government's target of about 3% this year.

China has tightened social restrictions to curb delta variant including travel limits, which have hampered demand in the service sector, even though Beijing has largely contained the latest coronavirus outbreak.

The drop in airfare, travel and hotel room prices due to the pandemic has slowed consumer inflation on a monthly basis. A recent survey showed that service sector activity fell in August to the lowest level since the first wave of the epidemic in April 2020, as restrictions threatened to derail the recovery.

Many analysts expect the People's Bank of China to further reduce the amount of cash that banks must hold in reserves later this year to boost growth, on top of the July cut, which released about 1 trillion yuan ($6.47 trillion) in long-term liquidity in the country. Economy.

Core CPI, which strips out volatile food and energy prices, held steady at 1.2% on an annual basis, versus a rise of 1.3% in July.

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