China Factory Prices Surge 13.5%, Highest in 26 Years

Factory gate prices rose in China at the fastest pace in 26 years during October, while consumer prices rose faster than expected, as the world’s second largest economy contended with soaring energy and commodities costs.

The producer price index (PPI) climbed 13.5% from a year earlier, faster than the 10.7% rise in September, the National Bureau of Statistics (NBS) said in a statement. That was the quickest pace since July 1995.

The PPI jump was fuelled by higher raw material costs and factory production cuts, as government restrictions on carbon emissions and soaring prices of coal led to a power crisis.

“This largely reflects temporary disruption in a handful of industries from energy shortages,” Julian Evans-Pritchard, senior China economist at Capital Economics, said.

Meanwhile, the country’s consumer price index (CPI) rose 1.5% in October year-on-year, quickening from September’s 0.7% rise, according to NBS data.

The rise reflected increased production and transport costs, senior NBS statistician Dong Lijuan said. “In October the CPI rose due to the combined effects of weather and the gap between supply and demand of some commodities,” Dong said.

Fresh Vegetables

“The price of fresh vegetables rose by 16.6%, affecting the CPI increase by about 0.34%, accounting for nearly half of the total increase,” he added.

Among non-food products, the price of industrial consumer goods rose by 0.9%, an increase of 0.6 percentage point from the previous month. “The increase was mainly due to the increase in the price of energy products,” said Dong.

The prices of petrol and diesel rose by 4.7% and 5.2%, respectively, which affected the CPI increase by about 0.15 percentage point.

The NBS expects government measures to stabilise the coal market will result in an easing of conditions from next month.

“We think PPI inflation is likely to drop back in the coming months while CPI inflation looks set to remain muted for the foreseeable future,” Evans-Pritchard said.

George Russell

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.