Conflict in the Middle East pushed up energy costs, driving China’s producer price index (PPI) to its fastest pace of growth in nearly four and a half years in October. Weak household demand, however, slowed the rise in the consumer price index (CPI).
Economists interviewed said October’s inflation data showed that supply and demand in China remained unbalanced, with no significant improvement in demand.
Data released by China’s National Bureau of Statistics on Monday (9 November) showed that PPI rose 5.7% year on year in October, up from 5.0% in September and above the 5.3% forecast in Reuters and Bloomberg surveys.
Dong Lijuan, chief statistician at the bureau’s urban statistics department, said nine industries, including coal mining and washing, oil and natural gas extraction and the manufacture of computers, communications equipment and other electronic equipment, together contributed about 6.14 percentage points to the year-on-year rise in PPI.
Meanwhile, CPI rose 0.7% year on year in October, with the increase slowing by 0.2 percentage points from September. The year-on-year decline in food prices widened from 1.7% the previous month to 2.9%, making it the main factor affecting consumer price inflation.
The prices of fresh vegetables, meat, eggs and fresh fruit together shaved about 0.54 percentage points off the year-on-year change in CPI. Price increases also slowed in other categories, including consumer goods, gold jewellery and services.
Excluding volatile food and energy prices, core CPI inflation eased from 1.0% in September to 0.8% in October, matching this year’s low.
Chen Bo, a senior research fellow at the National University of Singapore’s East Asian Institute, told Lianhe Zaobao (LHZB) that October’s data reflected a persistent imbalance between domestic supply and demand in China. Although consumer goods prices had risen, the increase was smaller than expected, and “consumer demand has not improved significantly”.
Xu Tianchen, a senior economist at the Economist Intelligence Unit, said in an interview that rising global oil prices triggered by renewed tensions in the Middle East were the main driver of last month’s increase in PPI. Falling food prices, however, offset energy inflation.
Strains on international energy supplies and the global artificial intelligence (AI) boom have pushed up commodity prices, including oil and metals, sending overall factory-gate prices sharply higher. But with weak household demand constraining consumer spending, upstream price pressures have yet to be fully passed on to consumers.
Citigroup economists warned that China faced a near-term risk of “bad inflation”, meaning price increases driven by commodity costs.
A Citigroup report noted that despite heightened uncertainty over oil prices and the Middle East situation, PPI still faced upside risks in the near term, while CPI faced downside risks. “Energy prices still hinge on global prices, and if oil prices normalise, deflation risk could still return.”
Zheng Shanjie, chairman of China’s National Development and Reform Commission, told a symposium with private enterprises last month that practical challenges such as “external shocks and strong supply but weak demand” must be confronted.
Chen said China had considerable potential to strengthen the resilience of its own energy supply, but price increases caused by the energy crisis would still affect producers. As winter approaches, energy prices could remain relatively high, and “businesses may continue to face cost pressures”.
Xu, however, thought PPI was more likely to fall next year. He said, “On the one hand, oil prices are more likely to fall than rise. On the other, domestic demand in China is relatively subdued, providing limited impetus for inflation.”
