Commodity inflation set to continue: China central bank

China's producer price index (PPI) could rise in the second and third quarters because of gains in global commodity prices, the country's central bank the PBOC said.

The PPI, which measures factory gate prices, rose at the fastest rate in over three years in April as the Chinese economy continued to recover from the impact of Covid-19. The PPI rose by 6.8pc from a year earlier in April, the national statistics bureau (NBS) said yesterday.

Government stimulus packages to revive economies hit by Covid-19 have provided a basis for commodity consumption to rise, even as a resurgence of the coronavirus in many parts of the world has curtailed supply, the PBOC said. Relatively loose monetary policies by central banks in key economies have also contributed to inflation, it added.

Commodity inflation could continue in the near future, potentially sending China's PPI higher in the second and third quarters, the bank said. Crude oil, iron ore and copper are likely to have the biggest impact on producer prices, given China's dependence on imports of these commodities, it said.

Nevertheless, the expected rise in PPI is unlikely to have a big impact on China given the low base last year that will exaggerate the increases, the PBOC said. A price correction is likely when global commodity production output recovers as Covid-19 comes under control, it said, without specifying when this is likely to happen.

China's consumer price index (CPI) is unlikely to rise significantly in tandem with the PPI during the second and third quarters given prices of food such as pork and grain, which have a disproportionate effect on the CPI, are under control because of abundant availability, the PBOC said.

By Kelvin Leong