BEIJING – China’s consumer inflation unexpectedly stalled in May even as factory prices gained at the fastest pace in almost four years, as higher commodity costs bring closer the end of a record streak of economy-wide deflation.
The consumer price index (CPI) climbed 1.2 per cent from a year earlier, rising at the same pace as in the previous month and missing the median estimate of 1.3 per cent in a Bloomberg survey of economists. A 16 per cent plunge in pork prices had a 0.3 percentage-point drag on the CPI, according to data published by the National Bureau of Statistics (NBS) on June 10.
Producer inflation accelerated to 3.9 per cent from a year earlier, matching forecasts and up from 2.8 per cent in April. The core CPI, which strips out volatile food and energy prices, also surprised by undershooting expectations and increasing 1.1 per cent, slower than its 1.2 per cent gain in April.
The renminbi erased gains against the dollar in onshore trading after the data release. The yield on 10-year government bonds held steady at about 1.7 per cent.
“The acceleration of electrification, the deep integration of artificial intelligence across various sectors, and the growing demand for computing power have driven up prices in industries such as non-ferrous metals, electrical machinery, and computers,” NBS statistician Dong Lijuan said in a statement accompanying the figures.
The AI boom is feeding through to prices by stoking demand for Chinese electronics from chips to printed circuit boards. Exports jumped more than 19 per cent from a year earlier in May – the most in three months – in large part as a result of the global investment supercycle that is unleashing hundreds of billions of dollars in spending on the build-out of data centres in the US.
A rally in commodities like aluminium and copper is additionally pushing up output prices as non-ferrous metals benefit from greater demand thanks to AI.
“The Iran war lifted producer prices, but weak domestic demand prevented pass-through to consumer inflation,” said Bloomberg economist David Qu.
“Looking ahead, we expect PPI inflation to remain relatively elevated, though lower oil prices should slow the pace of increase. CPI inflation should stay soft.”
A global energy crisis triggered by the war in Iran has revived inflationary pressures in the world’s second-biggest economy, even as consumer-facing factories struggle to pass on higher raw material costs to buyers.
Years of weak demand and excessive supply have contributed to bruising competition among Chinese industrial firms that is keeping a lid on reflation.
Bloomberg Economics predicts the GDP deflator, a measure of price changes across the economy, may end its three-year stretch of declines this quarter. BLOOMBERG
