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Chinese Manufacturers Grapple with Material Price Hikes

Chinese producer prices rose faster than expected last month. Companies are struggling with soaring raw material prices, despite government measures to cut costs.

 

Manufacturers charged 9 percent more for their products in July than a year earlier, according to official figures from the Chinese statistical office. That is the same as in May when inflation reached its highest level in 13 years. Connoisseurs generally assumed that producer prices would have increased by 8.8 percent, equal to the level of a month earlier.

The Chinese government is trying to temper the price increases by raising export tariffs on certain iron and steel products. In addition, Beijing temporarily exempts tariffs on iron and scrap and has removed tax credits for exporting some steel products to increase supply in the domestic market.

The world’s second-largest economy has largely recovered from strict measures to contain the spread of the coronavirus. But an increase in the number of infections with the Delta variant has raised concerns about the recovery. In addition, there are fears that inflation could rise further as lockdowns cause supply problems in parts of the country.

Life for households in the world’s second-largest economy also became slightly more expensive on average, but inflation rose less rapidly than a month earlier. Consumer prices rose 1 percent year-on-year in July. The average expectation here was an increase in prices of 0.8 percent after inflation of 1.1 percent a month earlier.

This decrease was mainly caused by falling food prices. For example, the price of pork has fallen by 43.5% year on year, partly due to increased stocks. In addition, extreme weather has caused the costs of production, storage and transport of fresh vegetables to become more expensive in certain parts of China.

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