China’s Prices Rise Amid Forecasts Lockdowns; Ukraine War

China’s inflation rose more than expected in March. The closure of COVID-19 and the aftermath of the Ukraine war pushed up prices in the world’s second-largest economy. According to data released by the National Bureau of Statistics on Monday, the Chinese producer price index, which measures factory inflation, rose 8.3 percent year on year against rising energy prices and constant delays in the supply chain. An 8.8 percent rise in February offset the increase in factory gates.

However, it still precedes the forecasts of economists. China Consumer Price Index, which controls the cost of daily goods and services, also rose in anticipation; However modest at 1.5 percent a year, compared with 0.9 percent in February. A year earlier, food prices fell 1.5 percent, down from 3.9 percent in February.

China and Global Inflation

Asia Pacific chief economist Natixis in Hong Kong said inflation was a worrying sign for a global economy struggling with rising prices. Food price stability is a priority at this stage. This is very important for China, and because of China’s food supply, it won’t be very good for the global trend. China should boost food imports. This will put additional pressure on global inflation.

Higher-than-expected inflation comes despite a slowdown in economic activity. Authorities continue to take measures to control the coronavirus; Among them is the lockdown in Shanghai, which has displaced 26 million people from their homes.

According to official data from the Chinese government, activity in the service sector fell at its fastest pace in two years in March. Economists are skeptical that the country will be able to achieve its 5.5 percent economic growth target by 2022. Chinese officials announced 26,411 new cases of asymptomatic coronavirus on Sunday. Most of them were in Shanghai, entering its third week of closure on Monday. China’s central bank should cut borrowing costs to support the economy this year. This breaks with the rising trend of high-interest rates amid rising inflation.

Conclusion

According to Hong Kong’s senior economist at Hong Kong, he expected Chinese inflation to rise significantly in the second half of the year. Regarding policy, the CPI is likely to remain below the target in the second quarter, Given the impact of lock measures on domestic demand. However, rising energy prices and the normalization of domestic pork supply chains should contribute to rising inflation in the second half of the year. The People’s Bank of China should post additional stimulus in April and May as long as conditions remain supportive.

Experts estimate that the CPI will average 3.0 percent in 2022. They expect consumer prices to exceed the official target by the middle of the year; As a result, it will reach 4.5 percent in July/August.