China’s producer prices rise at fastest pace since 2022

China's producer prices rose 5% in September from a year earlier, the fastest increase since June 2022. Oil and other commodity costs pushed factory-gate inflation higher, while consumer prices barely moved, according to National Bureau of Statistics data released Wednesday.rmb.reuters

The producer price index (PPI) jumped from 3.8% in August and beat the 4.5% rise forecast in a Reuters poll. The consumer price index (CPI) rose 0.9% year on year, up from 0.8% but short of the expected 1%. That leaves a wide gap between what manufacturers pay and what households spend. Reuters reported that the data points to a recovery led more by exports than by domestic spending.rmb.reuters

Energy and Mining Lead the Increase

Bloomberg reported that hostilities in the Middle East pushed oil above \$100 a barrel and that goods linked to artificial intelligence also became more expensive. Prices of producer goods rose 6.5%, with mining up 25.4% and raw materials up 9.4%. Prices of consumer goods at the factory gate still fell, by 0.1%. Coal mining and washing rose 35.3% and oil and gas extraction 24.5%. Car manufacturing prices kept falling, down 2%. Month on month, PPI rose 1.2%. Statistics bureau official Dong Lijuan attributed the increase mainly to higher international prices for oil and other commodities.ground+2

"Much of the upward pressure still came from commodity supply disruptions caused by the Middle East conflict," said Nguyen Hoang Nam, China economist at Capital Economics. He expects prices to fall back next year.rmb.reuters

Consumers Still Cautious

Gasoline prices rose 16.6% from a year earlier and added about 0.47 percentage points to headline CPI. Core inflation, which excludes food and energy, held at 1%. Food prices fell 1.7%, including a 10% drop in pork, and rents declined for a sixth straight month. Month-on-month CPI slowed to 0.2% as airfares, hotel rates and travel agency prices fell after the summer holidays.think.ing+2

ING said inflation remains "comfortably below" the official 2% target, so it does not stand in the way of further easing by the People's Bank of China. Beijing recently approved an additional 550 billion yuan in unused local government bond quota for infrastructure and other spending. Markets barely moved after the release. China's blue-chip CSI 300 slipped and the Shanghai Composite edged up.rmb.reuters+1

Zhou Hao, chief economist at Guotai Junan International, said the main question is whether industrial momentum feeds into jobs and incomes. "If that transmission mechanism improves, the current divergence between producer and consumer prices could narrow from the demand side, creating a more balanced and durable recovery in 2027".rmb.reuters