China’s PPI growth hit record 10.7% in September driven by surging commodity price, energy curbs

China’s factory-gate inflation hit the highest level on record in September driven by soaring commodity prices and measures to curb energy use, while consumer inflation eased slightly dragged by falling food prices.

The producer price index (PPI), which reflects the prices factories charge wholesalers for their products, jumped 10.7 per cent in September from a year earlier, accelerating from a gain of 9.5 per cent in August, the National Bureau of Statistics (NBS) said.

September reading is the highest since the NBS record started in October 1996. That’s above expectations of 1.3 per cent in a Yuan Talks survey of analysts from 16 major financial and research institutions in China.

The sharp in PPI this year have been mainly due to surging commodity prices and meanwhile, China’s energy crisis is now adding further pressure, with economists warning that Beijing’s decision to allow electricity prices to rise to ease the power shortage will add to inflation pressures.

The PPI growth in September was partly driven by a 74.9 per cent growth in the coal mining sector in September, up from a rise of 57.1 per cent in the previous month, said the NBS.

“In September, driven by factors such as rising prices of coal and products of some energy-intensive industries, the price of industrial products continued to rise,” said NBS spokeswoman Dong Lijuan, who added that among 40 industrial sectors surveyed by the NBS, 36 industries saw price hikes.

NBS data showed that prices in oil and natural gas exploration, procession of oil, coal and other fuel fuels, ferrous and non-ferrous metal industries as well as chemical industries jumped by 24.6 – 42.6 per cent in September from a year earlier. The industries combined contributed to 8.42 percentage points of PPI’s growth last month, said the NBS.

In addition, the carryover effect contributed to about 1.8 percentage points of the growth, in line with that in August, it said.

On a month-on-month basis, PPI grew by 1.2 per cent in September, picking up by 0.5 percentage points from the previous month, showed the data.

China’s consumer price index (CPI), meanwhile, rose by 0.7 per cent in September from a year earlier, slowing from a rise of 0.8 per cent in August, the NBS said. That’s below the 0.9 per cent rise expected to analysts in a Yuan Talks survey.

China has set a full-year CPI growth target of around 3 per cent in 2021, compared with around 3.5 per cent last year.

“In September, supply and demand in the consumer market were basically stable, and prices were generally stable,” said Dong.

The slower CPI growth last month was mainly attributable to sliding food prices which fell by 5.2 per cent from a year earlier, faster than fall of 4.1 per cent in August. In particular, pork prices plunged 46.9 per cent year over year, accelerating by 2 percentage points from the prior month.

China’s core consumer inflation rate, excluding volatile food and energy prices, rose by 1.2 per cent in September compared with a year earlier, unchanged from August.

Non-food prices grew by 2 per cent in September, picking up slightly from the 1.9 per cent growth in August. Gasoline and diesel prices grew at a faster pace last month, up 23.4 per cent and 25.7 per cent from a year earlier, respectively. Prices of flight tickets, travel agency services and hotel services increased by 15.7 per cent, 8.7 per cent and 1.2 per cent, respectively, slower than the previous month.

Consumer inflation has been benign this year having fallen to minus 0.3 per cent in January from a year earlier, in part due to slumping pork prices and greater competition among downstream businesses.

The State Council, China’s cabinet, said last week that power prices will be allowed to rise by as much as 20 per cent against a benchmark, double the level of the current cap, a move that would make it profitable for electricity producers to boost supply, while also curbing users’ demand.

Nomura Holdings’ chief China economist, Lu Ting, estimated the impact on CPI could be about 0.4 percentage points, while Michelle Lam, greater China economist at Societe Generale, projected a 0.1 percentage point increase in CPI.

But the effect on PPI could be bigger, given higher costs for energy-intensive industries. Analysts at TF Securities said in a report at the weekend that the power hikes could result in a 1 per cent rise in PPI and 0.5 per cent increase in CPI.