China's factory-gate inflation was higher than expected in March, official data showed Monday, as Russia's war on Ukraine pushes up oil prices while a domestic COVID-19 resurgence strains food supplies and consumer costs.
The producer price index (PPI) – measuring the cost of goods at the factory gate – grew 8.3% year-over-year, National Bureau of Statistics (NBS) figures showed.
This was slightly more than a Bloomberg poll of economists expected, while PPI also rose on-month.
"Geopolitical and other factors have pushed global commodity prices to continue increasing, driving the prices of oil, nonferrous metals and other related industries to rise further domestically," NBS senior statistician Dong Lijuan said in a statement.
China's consumer price index (CPI), a key gauge of retail inflation, rose more than expected as well, by 1.5% on-year in March, the NBS said.
Although consumer demand eased after festive periods earlier in the year, some food prices have picked up due to "rising international prices of wheat, corn and soybeans" and domestic COVID-19 outbreaks, Dong said.
This comes as world food prices hit an all-time high in March following Russia's invasion of Ukraine, an agricultural powerhouse, according to a United Nations agency.
Russia and Ukraine make up a massive share of exports in major commodities such as wheat, vegetable oil and corn.
Zhaopeng Xing of ANZ Research said energy prices had "become the major driver for both CPI and PPI."
"CPI inflation could rise further in April as households across China have been stocking up on food and other necessities after taking lessons from the fallout of Shanghai's lockdown," Nomura's chief China economist Ting Lu told Agence France-Presse (AFP).
As the financial hub locked down almost entirely in recent weeks, residents had trouble getting groceries while COVID-19 controls snarled supply chains to the rest of the country.
"Due to lockdowns and transport disruptions in northeast China, the largest grain production base in China, this year's spring farming may have been delayed and the risk of food shortage may rise in the second half," Lu added.
This piles pressure on the worsening global food shortage caused by the military conflict in Ukraine, he said.
China on Sunday reported over 1,300 confirmed coronavirus infections and more than 25,000 asymptomatic cases, according to the National Health Commission (NHC).
The financial hub Shanghai, which remains under a strict lockdown, accounted for 23,937 of the 25,111 asymptomatic cases reported across China over the past 24 hours, according to the daily NHC update.
Chinese shares have also posted their biggest drop in nearly a month on Monday hit by the COVID-19 curbs and worries over an inversion in the 10-year spread between domestic and U.S. yields, high domestic factory-gate and consumer inflation.
The blue chip CSI300 index fell 3.1% to 4,100.07, and the Shanghai Composite Index lost 2.6% to 3,167.13.
The Hang Seng index fell 3% to 21,208.30, and the China Enterprises Index lost 3.8% at 7,208.49 points.
The four indexes all posted their biggest declines since March 15.
Also, yields on China's 10-year government bonds fell below U.S. Treasury yields for the first time in 12 years, dimming the attractiveness of yuan-denominated assets.
"With the government doggedly sticking to its COVID-zero policy, fears are increasing that an extended lockdown in the country, which may spread to other major industrial cities, will darken an already cloudy outlook for China's growth," OANDA senior market analyst, Jeffrey Halley, told Reuters.
Electric vehicle maker Nio Inc. suspended production as China faces its worst coronavirus outbreak in two years, while battery giant Contemporary Amperex Technology (CATL) implemented a "closed-loop management" system at its main factory to keep production going.
