November 10, 2021

China factory gate inflation hits 26-year high as cost pressures grow

By ellen

BEIJING (REUTERS) – China’s factory gate prices rose at the fastest pace in 26 years in October, beating forecasts and further squeezing profit margins for producers already grappling with soaring coal prices and other commodity costs due to a power crunch.

The producer price index (PPI) climbed 13.5 per cent from a year earlier, faster than the 10.7 per cent rise in September, the National Bureau of Statistics (NBS) said on Wednesday (Nov 10).

It matched a pace not seen since July 1995 and was faster than the 12.4 per cent forecast by analysts in a Reuters poll.

The jump was fuelled by higher raw material costs and factory production cuts, as government restrictions on carbon emissions and soaring prices of coal, a key fuel for electricity generation, led to power rationing.

However, the power crunch has since eased somewhat following government intervention to stabilise the coal market.

China’s consumer price index (CPI) grew 1.5 per cent last month year on year, quickening from September’s 0.7 per cent rise and beating the 1.4 per cent gain tipped by the Reuters poll, according to NBS data.

That suggests the inflation pass-through from China’s producers to consumers has been generally subdued, although there are signs cost pressures are increasingly being felt by households.

Several Chinese food giants have announced increases in retail prices in recent weeks, as rising production costs erode profit margins, including Foshan Haitian Flavouring and Food, vinegar producer giant Jiangsu Hengshun and frozen food firm Fujian Anjoy Foods.

The PPI inched up 2.5 per cent on a monthly basis, compared with the 1.2 per cent uptick in September.

Other recent indicators show China’s economy is losing steam with growth widely expected to slow further in the fourth quarter from a one-year low of 4.9 per cent in the third quarter. Factory activity shrank for a second straight month in October.

Slowing economic growth and soaring factory inflation have fuelled concerns over stagflation, which could mean China moves cautiously on loosening monetary policy.

Core inflation, which strips out volatile food and energy prices, stood at 1.3 per cent rise last month from the previous year, higher than the 1.2 per cent uptick in September.