La Jornada: Producer prices in China reached their highest level in almost four years

Beijing. China’s producer prices rose for the third straight month in May to hit their highest level since July 2022, while consumer prices remained elevated as global energy tariffs put pressure on manufacturers’ spending and raised the cost of living for households.

Cost pressures from the war with Iran could reduce corporate profits and further dampen domestic consumption, although global demand related to artificial intelligence (AI) provided a boost for some sectors.

For producers outside of the advanced manufacturing sector, continuing to pass on rising input prices to consumers could remain difficult, highlighting the obstacles policymakers face in their efforts to support the labor market and bolster domestic demand that remains weak.

The producer price index (PPI) rose 3.9 percent from a year earlier, according to data from the National Statistics Office, above the 3.8 percent forecast in a Reuters poll and the 2.8 percent increase recorded in April.

“In sectors where demand is strong, such as AI, companies can pass on the higher cost of inputs and even apply a profit margin to end consumers,” said Xu Tianchen, an expert at the Economist Intelligence Unit. This is not the case in sectors such as automobiles, he added.

The increase in demand for computing power contributed to the increase in the PPI, the National Statistics Office said in a statement, noting the rise in prices in the sectors of smelting and rolling of non-ferrous metals and the manufacture of electronic equipment. The PPI rose 0.5 percent month-on-month, less than the 1.7 percent growth recorded in April.

Energy prices have soared since the United States and Israel attacked Iran in late February, and cost pressures are likely to persist as the effective closure of the Strait of Hormuz continues to disrupt oil and gas flows from the Persian Gulf.