Wed. Dec 1st, 2021


Factory gate prices in China rose at their fastest pace in 26 years in October, as crippling power shortages and record commodity prices hit the world’s second largest economy.

China’s official producer price index rose 13.5 percent compared to October 2020, according to figures released by the National Bureau of Statistics on Wednesday, its largest monthly jump since 1995.

The rise exceeded the 12.4 percent rise predicted by analysts polled by Reuters, and exceeded September’s 10.7 percent read, which was also the highest since 1995.

Factory gate prices refer to the cost at which wholesalers buy materials from producers, not taking into account transport and distribution fees.

The acceleration in producer prices together with weakening of manufacturing activity has raised fears of stagflation, hampering the country’s economic prospects as slowing growth poses a challenge to President Xi Jinping’s sweeping reforms of China’s business landscape.

Rising commodity prices also exacerbated the country’s energy problems. China veg rising coal prices after floods in critical mining regions and the government’s clean energy targets reduced output, while widespread power rationing led to a second monthly contraction in manufacturing activity in October.

Dong Lijuan, a senior statistician at China’s NBS, said the PPI rise in October was due to the “tight supply of essential household energy and raw materials”.

Dong noted that rising oil prices, which last month over $ 85 a barrel in the US, and coal, which reached Rmb2 301 ($ 360) per tonne in China, contributed to the increase.

Production material prices rose by 17.9 per cent in October compared to the same period last year, Dong added, while prices in the coal mining and washing industries rose by 103.7 per cent.

But analysts at Citi predict that PPI inflation is near a peak and will not remain rising.

And recent measures to curb rising costs, including coal miners promise to lower prices as well as the dwindling energy crisis will help dampen inflationary pressures, analysts said.

“Stagflation concerns should ease forward,” Citi analysts wrote in a note.

Yet some expect central bankers in Beijing to be forced to offer more support to the economic momentum slows.

“We expect the [People’s Bank of China] to have more leeway for the rest of the year to buffer the economic slowdown, ”said Jing Liu, a Chinese economist at HSBC.

Consumer price inflation also rose faster than economists predicted in October, reaching a 13-month high.

China’s CPI was 1.5 percent higher year-on-year, and 0.7 percent compared to September. The cost of fresh vegetables rose by 16.6 per cent, furthering concerns that rising production costs had introduced essential goods.

But Zhaopeng Xing, a China strategist at ANZ, said households’ slowing disposable income as well as mobility restrictions set to renew outbreaks of Covid-19 consumer increases will limit.



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