Employees work on a production line manufacturing metal parts for furniture at a factory in Hangzhou, Zhejiang province, China April 30, 2020. China Daily via REUTERS
The People’s Republic has an unusual inflation problem. A commodities rally exacerbated by domestic speculators pumped up the producer price index by a whopping 9% in May, the fastest gain since 2008. Consumer inflation, on the other hand, rose a tepid 1.3%. Companies appear unable to pass higher costs onto their customers.
The surge is a partial by-product of Beijing’s pandemic package, which relied on its standard playbook focused more on credit-fuelled infrastructure investment than transfers to consumers. Excess liquidity has flowed into real estate, pumping up demand for steel and glass; increased energy use has pushed up thermal coal prices. Higher interest rates might help, but hiking them would be extremely risky given factory output and retail sales both slowed in April.
Administrative measures against property and commodity speculation have had limited effect. For now, PPI will keep deducting from China Inc’s bottom line. Chinese jeweller peddles gems of diversification
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