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PPI rise fuels fresh worries

By Wang Xu (China Daily)
Updated: 2008-05-10 10:15

China's producer price index (PPI) hit a four-year high of 8.1 percent in April, highlighting the danger that the non-food sector might become a new driver of consumer inflation.

Crude oil saw the biggest hike, surging 37.9 percent from a year earlier, figures from the National Bureau of Statistics showed on Friday.

Coal was up 20.9 year-on-year, while steel prices increased 25 percent to 41 percent.

China is now striving to rein in inflation with its consumer price index (CPI), the gauge for inflation, hitting 8.7 in February, a 12-year record.

While the consumer inflation rate dipped to 8.3 percent in the following month, it is still worrying many as food prices, the main cause for the nation's inflation so far, show no sign of easing.

"Given the soaring PPI figures, the inflation scenario could be worse in the second half than we expected," said Li Zhikun, a senior economist with China Jianyin Investment Securities Co.

"Products of the non-food sector could replace foods to become a new driver for inflation."

Analysts have expected China's consumer inflation to ease later this year, when the government's measures to boost food supply may show effect. But while the ongoing turmoil in the international grain market is adding uncertainty, the non-food sector is now exerting growing inflationary pressure.

PPI, which measures the price of finished products when they leave the factory, is a leading indicator for consumer inflation. Analysts say it usually takes about six months for price hikes at factory gates to finally be felt by consumers.

Producer prices have also been climbing in the nation over the past months, largely due to the rising costs of fuel, raw materials and power. In February, it set a high of 6.6 percent and gained 8 percent in March.

Over the past months, an increasing number of local manufacturers have moved to hike their sticker prices, despite efforts to absorb soaring costs.

On April 10, Chery Automobile Co, a homegrown automaker famous for its low-price subcompacts, hiked prices for its mainstream products, citing rising steel prices. The increase, as much as 3 percent, saw a slew of other local automakers following suit.

Analysts said CPI figures to be released next Monday is likely to stay above 8 percent. China Jianyin Investment Securities Co and Goldman Sachs estimated it could be 8.5 percent.

Given factors such as elevated inflation, the government will, at a minimum, maintain its tightening stance to anchor inflationary expectations, said Liang Hong, an economist with Goldman Sachs.