BEIJING, (Reuters) – China’s February factory inflation eased to its slowest pace for eight months. This was due to seasonal effects of the Lunar New Year holiday. However analysts anticipate it will rise as a result of rising global commodity prices.

On Wednesday, the National Bureau of Statistics announced that the producer price index (PPI), increased 8.8% year-over-year. It was down from 9.1% in January, and slightly more than an 8.7% increase in a Reuters survey.

Due to Lunar New Year celebrations, many Chinese factories were forced to close in February’s first half. This temporarily lowered the demand for raw material. However, the conflict in Ukraine raised fears about supply disruptions and pushed energy and global commodity prices up to ten-year highs.

Julian Evans-Pritchard (Senior China Economist at Capital Economics) stated that “the surge in global commodity price after Russia’s invasion Ukraine will have more pronounced impacts on the March figures.”

A state economic planner official said Monday that China’s attempts to stabilize commodity prices are facing new difficulties due to the high price of coal and iron ore. This is a result of COVID-19 which is a shift in monetary policy for big economies as well as geopolitical conflict.

Official data revealed that the major drivers of PPI for last month were increased prices for oil, gas, and iron ore.

China gets more than 70% of its oil from foreign sources and 40% of its natural gas, while the government tries to improve domestic production.

Analysts have indicated that the potential for monetary ease may be restricted by higher commodity prices.

Bruce Pang from China Renaissance Securities, Head of Macro and Strategy Research said that sanctions on Russia may impede China’s trade and could lead to higher import prices.

China may be facing a rise in commodities prices that could increase its PPI inflation. This would also limit China’s ability to impose monetary easing.

The data revealed that China’s Consumer Price Index (CPI), which was unchanged from January growth and market expectations, increased 0.9% in February.

China’s 2022 CPI target was unveiled by the Chinese government on Saturday. It remained at 3%. This is unchanged from 2021. The CPI rose 0.9% last year due to cautious consumer spending and weakening economies.

China’s 2022 goal is to slow down economic growth by around 5.5%. However, the government has cited multiple headwinds both at home and overseas.