China factory-gate inflation hits new high in October

·2-min read
Factory-gate inflation in China has been rising for four straight months (AFP/STR)

China's factory-gate inflation hit a 26-year high in October while fresh virus outbreaks and soaring food and energy prices sent consumer prices up more than forecast, official figures showed Wednesday.

The producer price index (PPI) has been rising for four straight months, putting pressure on authorities to stop costs from running out of control, just as officials battle to kickstart a recovery in the world's number two economy.

The reopening from lockdowns around the world has ramped up energy demand just as stockpiles are low, with supply struggles made worse by China's drive to meet environmental targets.

The PPI, which measures the cost of goods at the factory gate, jumped a bigger-than-expected 13.5 percent on-year in October, said the National Bureau of Statistics.

"The rise in PPI expanded due to the combination of imported global factors and the tight supply of major domestic energy and raw materials," said NBS senior statistician Dong Lijuan.

These include a sharp increase in domestic coal prices, rising oil and gas prices globally and supply chain disruptions, said Rajiv Biswas of IHS Markit.

Another recent factor, he added, was a sharp uptick in shipping costs around the world "due to the strong rebound in trade flows" between China, the United States, and Europe.

PPI reached 10.7 percent in September, which was then the highest on record in NBS data since the mid-1990s.

"The surge of PPI inflation is especially negative for investment demand as developers and local governments are financially stretched this year due to the unprecedented property curbs," Nomura chief China economist Lu Ting told AFP.

Factory prices have also been pushing up export costs and "impairing Chinese exporters’ competitiveness", although the PPI may have now peaked as Beijing moved to contain coal prices.

Dong said 36 out of 40 industrial sectors surveyed saw price increases, including spikes in coal mining and oil and natural gas extraction.

The consumer price index (CPI), a key gauge of retail inflation, meanwhile picked up more than expected in October after four months of decline.

The CPI hit 1.5 percent -- up from 0.7 percent in September.

Vegetable costs surged almost 16 percent owing to poor weather, coronavirus outbreaks and rising transportation costs, Dong said.

The government this month urged people to stock up on food amid increasingly tight measures to contain its latest Covid outbreak -- prompting reports of panic buying across the country.

The commerce ministry notice also told authorities to take measures to facilitate agricultural production, keep supply chains smooth, and maintain stable prices.

"Due to the rise of food prices thanks to both panic buying, bad weather and some pass through from higher energy prices, we expect CPI inflation to rise further," said Nomura's Lu.

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