China Inflation Exceeds Expectations as Lockdowns Disrupt Supplies, According to Bloomberg

China’s factory gate prices increased more than anticipated in April, alongside a rise in consumer prices due to Covid outbreaks and lockdowns that drove up food and fuel costs.

The producer price index climbed 8% year-on-year, slightly down from 8.3% in March, and surpassing the median forecast of a 7.8% increase from economists surveyed. Meanwhile, consumer price growth accelerated to 2.1%, up from 1.5% the previous month, exceeding the expected 1.8% rise.

While commodity prices have begun to decrease from the peaks triggered by the war in Ukraine, costs remain high, impacting manufacturers’ profit margins. The recent Covid outbreaks in China and the ensuing restrictions have indirectly raised operating costs, complicating production, raw material procurement, and shipping operations.

Dong Lijuan, a senior statistician at the National Bureau of Statistics, noted that the rise in consumer inflation was influenced by virus-related disruptions and increasing global commodity prices. Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, highlighted that consumer panic buying likely contributed to increased demand, although he suggested that as supply chain issues are gradually resolved, inflation pressures may decrease.

In April, food prices surged as several regions implemented lockdown measures to control Covid spread. The cost of fresh vegetables skyrocketed by 24% compared to a year earlier, up from a 17.2% increase in March, while pork prices dropped significantly, falling by 33.3%. Fuel costs also rose by 28%, making vehicle fuel the fastest-increasing component in the consumer price index.

The core consumer price index, which excludes volatile food and energy prices, saw a 0.9% rise, down from a 1.1% increase in March.

Economists at Fitch Ratings warned that the lockdown in Shanghai could worsen global supply chain delays and inflation concerns. They pointed to a significant decrease in freight traffic in Shanghai during late April and early May, which has caused port backlogs. With Shanghai managing around 20% of China’s port volume and China responsible for 15% of global merchandise exports, shortages of manufactured goods could intensify, further exacerbating global inflationary pressures.

The adherence to stringent Covid restrictions has led several economists to adjust their growth forecasts for the year downward, anticipating levels much lower than the government’s target of approximately 5.5%. The ongoing commitment to a zero-Covid strategy is expected to result in additional city lockdowns and mass testing efforts in response to the virus. Major cities, including Beijing, Hangzhou, and Yiwu, which is known for wholesale Christmas decorations, have implemented measures to contain Covid.

Updates include insights and analysis reflecting the evolving economic situation.