Soaring factory inflation in the world’s second-largest economy could exacerbate global price increases.

Inflation in China rose more than expected in March as the fallout from the COVID-19 lockdown and the Ukraine war pushed up prices in the world’s second-largest economy.

China’s producer price index (PPI), which measures factory inflation, rose 8.3 percent year-on-year amid rising energy prices and ongoing supply chain disruptions, according to data released by the National Bureau of Statistics (NBS) on Monday.

The increase in factory prices was slower than the 8.8% increase in February, but still above economists’ forecasts.

China’s consumer price index (CPI), which tracks the cost of everyday goods and services, also beat expectations, although it edged up 1.5% year-on-year, compared with 0.9% in February.

Compared with a year ago, food prices fell 1.5%, after falling 3.9% in February.

“Additional pressure on global inflation”

Alicia García Herrero, chief Asia-Pacific economist at Natixis in Hong Kong, told Al Jazeera that the inflation data is a worrying sign for the global economy, which is already struggling with soaring inflation. price.

“Because it should have fallen because demand plummeted in March,” Garcia Herrero said.

“I think food prices will go up because of the lockdown. [Chinese Premier] Li Keqiang made his point of stabilizing food prices at a recent State Council meeting. I think this is very important for China, and because of China’s grain reserves, it will be very negative for global trends, because China may increase food imports, which will put additional pressure on global inflation. “

Despite a slowdown in economic activity, inflation remained higher than expected as authorities continued to take drastic measures to contain the coronavirus, including a lockdown in Shanghai that has confined 26 million residents to their homes.

Activity in the services sector contracted at the fastest pace in two years in March, according to official Chinese government data, and economists are widely skeptical that China will be able to meet its 2022 economic growth target of 5.5 percent.

Chinese officials reported 26,411 new asymptomatic coronavirus cases on Sunday, most of them in Shanghai, which entered its third week of lockdown on Monday.

China’s central bank is widely expected to cut borrowing costs this year to support the economy, breaking a trend of rising global inflation that has led to higher interest rates.

Carlos Casanova, senior Asia economist at UBP in Hong Kong, told Al Jazeera he expects inflation in China to pick up sharply in the second half of the year.

“On the policy side, CPI is likely to remain below target in the second quarter, given the impact of the lockdown measures on domestic demand,” Casanova said.

“However, the combination of higher energy prices and normalization of the domestic pork supply chain should lead to higher inflation in the second half of the year. The PBOC should deploy additional stimulus in April and May, while conditions remain favorable.

“We expect CPI to average 3.0% in 2022. Our scenario assumes that consumer prices will exceed the official target by mid-year, reaching 4.5% y/y in July/August.”