CPI and PPI in China: The world’s second largest economy has a major inflation problem

The cost of goods leaving Chinese factories rose at another record rate last month, and there are growing signs that consumers are starting to feel the pain.

The producer price index jumped 13.5% in October from a year ago, accelerating from 10.7% in September, China’s National Bureau of Statistics said Wednesday. The increase in the past month was already the fastest since the government began releasing such data in the mid-1990s, according to Icon Refinitiv.

It now appears that higher costs are decreasing. China’s CPI rose 1.5% in October from last year, double the rate of the previous month And the fastest pace of increase since September 2020.

“We are concerned about the crossover from producer prices to consumer prices,” said Zhiwei Zhang, chief economist at Hong Kong-based Pinpoint Asset Management. “Companies have been able to use their stocks of inputs as a buffer to avoid passing on high costs to their customers before, but their stocks are depleted.”

October marks the first time consumer inflation has risen in five months. The rate has been gradually decreasing since May. But rising energy bills and disruptions in the food supply chain are starting to fuel price hikes.

last week, Chinese Ministry of Commerce He issued a notice directing local governments to encourage families to stockpile food and other daily necessities, as bad weather, power shortages and Covid-19 restrictions threaten to disrupt supplies. sudden warning panic buying Between public and frenzied speculation on the Internet.

The authorities attributed the rise in consumer inflation to the high costs of vegetables and gas.

Vegetable prices jumped 16% in October, mainly due to heavy rains and higher transportation costs, according to a statement from the State Department. Dong Lijuan, chief statistician at the National Bureau of Statistics. The severe weather has damaged crops, and authorities have acknowledged that the cost of transiting through regions could rise due to strict measures aimed at containing the Covid-19 outbreak.

Dong said gasoline and diesel prices had risen more than 30%.

The ongoing energy crisis has also been a major contributor to higher producer price inflation, as the cost of coal mining and processing has soared.

The second largest economy in the world It is already growing at the slowest pace in a year as power problems, shipping disruptions and a deepening real estate crisis take their toll.

The country’s high inflation rates are also raising global concerns. Rising producer inflation “feeds upward pressure on global inflation,” given China’s role as a global manufacturer and its importance in the global supply chain, according to Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank.

Producer inflation could also remain high “for some time, most likely during the winter,” said Jing Liu, chief economist for Greater China at HSBC. She added that energy prices may also continue to rise, and predicted that consumer inflation would continue to rise.

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