Business Maverick

International Finance

China’s Factory Inflation Surges to 26-Year High, CPI Gains

A worker stands in front of a machine on a yarn production line at the Fujian Strait Textile Technology Co. factory in Putian, Fujian province, China, on Monday, Feb. 8, 2021. China may have got its control of Covid down to a handful of new cases per day, but the restrictions, quarantines and travel curbs to keep it that way have forced millions of factory workers to give up the idea of a traditional family gathering. Photographer: Qilai Shen/Bloomberg

China’s factory-gate prices grew at the fastest pace in 26 years in October as raw material costs continued to soar, with signs that producers are passing on higher costs to consumers.   

The producer price index climbed 13.5% from a year earlier, beating economists’ forecasts of a 12.3% gain, data from the National Bureau of Statistics showed Wednesday. The consumer price index rose 1.5%, the fastest pace since September 2020 and above the projected 1.4% gain.
Factory inflation continues to rise faster than CPI

Producer prices in China have been rising rapidly in the past few months, first due to the global commodity price rally and then output curbs caused by a power crunch nationwide. Consumer inflation is also starting to pick up as weather-related supply problems push up food prices and manufacturers pass on higher costs to retailers.

The data “implies broad-based inflation pressure on both the production side and the consumer side,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. “Inflationary pressure and the more hawkish stance of monetary policy in other major economies will likely limit China’s room to maneuver for monetary easing.”

The jump in PPI growth was due to imported inflation and tight domestic supply of major energy and raw materials, Dong Lijuan, a senior statistician at the NBS said in a statement accompanying the data release. The pickup in CPI was due to factors such as weather conditions, tight supply of some goods and rising costs, she said.

The pickup in inflation comes against the backdrop of a weakening economy as electricity shortages, a slump in property and virus outbreaks weigh on activity. Rising inflation will likely reignite the debate over whether the central bank can provide more policy easing to help support growth.

What Bloomberg Economics Says…

The acceleration in China’s inflation in October is probably a bit of a side show for the central bank — we don’t expect the People’s Bank of China to take its eye off the need to cushion a slowdown in the economy. We still expect it cut banks’ required reserve ratio by another 50 basis points in the next month or so.

David Qu, China economist

For the full report, click here

Pork prices, a big driver of CPI, continued to decline in October, although at a smaller magnitude than in the previous month, with deflation in food prices also easing. Vegetable prices have jumped since mid-October following supply disruptions, prompting the government to crack down on hoarders. Vegetable prices rose 15.9% from a year ago, contributing 0.33 percentage point to the increase in CPI, according to the statistics bureau.

Core inflation, which excludes food and energy, accelerated to 1.3%.

There are signs that upstream producers have started to pass on rising costs to downstream businesses. Several food companies have already announced price hikes of up to 15%, including Haixin Foods, Anjoy Foods and Jiajia Food, due to rising costs for raw materials.


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