China’s factory inflation hits 13-year high as materials costs soar

China’s factory gate inflation hit a 13-year high in August driven by roaring raw materials prices despite Beijing’s attempts to cool them, putting more pressure on manufacturers in the world’s second-largest economy.

The producer price index (PPI) rose 9.5% from a year earlier in August, the National Bureau of Statistics (NBS) said on Thursday, faster than the 9.0% increase tipped in a Reuters poll and the 9.0% reported in July. That was the fastest pace since August 2008.

China’s economy has recovered strongly from last year’s coronavirus slump but has been losing steam recently due to domestic COVID-19 outbreaks, high raw material prices, tighter property curbs and a campaign to reduce carbon emissions.

Commodity prices have been on a tear in recent months, hurting the bottom lines of many mid- and downstream factories. China’s coal prices soared to a record high on Tuesday over supply concerns as major coal regions started fresh rounds of safety checks.

Earnings at China’s industrial firms have slowed for five straight months.

But coal and metals prices will likely drop back as construction activity falls amid restrictions on the property sector and slowing credit growth, Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note.

And the higher comparison base towards the end of last year will also pull down overall inflation. “We doubt producer price inflation will rise much further,” he said.

The coal, chemicals and metals industries drove much of the price increases in August, according to a statement released alongside the data by Dong Lijuan, an NBS official.

Prices in the coal mining and washing sector grew 57.1% in August from a year earlier.