Chinese producer inflation hits 5.7% for post-Covid era high

[BEIJING] China’s producer inflation accelerated to the fastest since June 2022 as more expensive energy raised factories’ costs but failed to prevent a slowdown in consumer-price growth.

Prices at the factory gate climbed 5.7 per cent in October from a year earlier, after a gain of 5 per cent in September, according to data released by the National Bureau of Statistics (NBS) on Monday. That exceeded all but one forecast in a Bloomberg survey of economists, whose median estimate was 5.3 per cent.

By contrast, the consumer price index (CPI) slipped more than forecast to 0.7 per cent in October, versus 0.9 per cent in prior month. Core CPI, which strips out volatile food and energy prices, slid to 0.8 per cent, matching this year’s low.

Nine industries – led by upstream sectors such as coal mining, oil and gas extraction and fuel processing – contributed to over six percentage points to the overall increase in producer inflation, NBS statistician Dong Lijuan said in a separate statement. 

The festering conflict in the Middle East – combined with trillions of dollars in artificial intelligence spending – is pushing up costs of commodities like oil and metals, even as Chinese companies struggle to pass them on to their customers. 

With diplomatic efforts failing to quell tensions around Iran, global benchmark Brent rallied to a six-month high in October despite a revival in oil flows through the Strait of Hormuz, the world’s most important energy checkpoint. Meanwhile, the global buildout of data centres is driving up demand for AI-related products and some raw materials.

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At the same time, the surge in producer inflation masks a deep divergence within China’s industry, with only half of the 30 key sectors tracked by the NBS recording price gains while the rest all declined.

Though China’s economy staged a modest rebound in the third quarter to put growth back into Beijing’s target range, the recovery remains uneven. Cautious households and weak private-sector confidence continue to restrain domestic demand against the backdrop of a prolonged slump in housing prices.

While higher petrol prices provided a lift to CPI, other categories including consumer goods, gold jewellery and services all had moderating price gains, according to Dong. A steeper decline in the cost of fresh vegetables, pork and fruit resulted in a 0.54 percentage point drag on consumer inflation.

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Led by items such as fuel and non-ferrous metals, producers’ purchasing prices jumped 7.9 per cent from a year ago, also the fastest pace since June 2022. The gap between input and output price gains widened to the most in four months.

Despite the surge in broader factory-gate inflation, firms’ output prices of consumer goods extended a decline that’s now lasted for over three years. While narrowing in recent months, it reflects the intense competition and weak consumer spending that’s preventing factories from passing on higher costs to households.

“We expect the external price shock to persist over the coming months but fade next year, with producer prices returning to deflation and consumer price inflation averaging just 0.4 per cent in 2027,” Nguyen Hoang Nam, China economist at Capital Economics, said in a note. BLOOMBERG