China Factory Prices Jump 5.7% as Consumer Inflation Cools

China’s factory-gate prices rose 5.7% year on year in October, the fastest pace since June 2022, while consumer inflation slowed to 0.7%, according to National Bureau of Statistics (NBS) data released on Monday, as BigGo Finance reported.

The producer price index (PPI) reading was up from 5.0% in September and above the 5.3% forecast in a Reuters poll, India Weekly reported. The consumer price index (CPI) eased from 0.9% and missed the 0.8% expected, leaving the gap between producer and consumer inflation at five percentage points.

Energy drives producer prices

On a monthly basis, producer prices climbed 0.7%. Prices of production materials rose 7.4% from a year earlier, with mining up 27.9% and raw materials up 11.6%, while consumer goods prices slipped 0.1%, ActionForex said, citing the NBS release.

Energy-linked industries led the gains. Coal mining prices jumped 36.6%, oil and gas extraction 35% and petroleum processing 29.9%. ActionForex tied the rise to high global energy prices amid the US-Iran conflict, while India Weekly said fighting in the Middle East had kept oil prices elevated in October.

NBS chief statistician Dong Lijuan pointed to three drivers: imported and seasonal energy factors, capacity governance and AI-related demand in some raw material and equipment industries, and ample supply that kept consumer goods prices stable, according to BigGo Finance.

Food drags on consumer prices

Consumer prices were flat from September, when they had risen 0.2%. Core CPI slowed to 0.8% from 1.0%.

Food prices fell 2.9% year on year, pulling CPI down by about 0.49 percentage points. Fresh vegetables dropped 16.9% and pork 8.6%. Gasoline, by contrast, rose 22.4%, while prices of data storage devices climbed 45.4% and computers 23%, BigGo Finance reported.

Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, said domestic demand remains weak, partly because of the property sector, India Weekly reported, citing CNBC. “There’s no clear sign of stabilization yet,” he said of property. Zhang Di, chief macro analyst at China Galaxy Securities, said the recovery in demand still needs time and that producer price gains have not spread widely to consumers.

What’s next

Feng Lin of Golden Credit Rating expects CPI to fall month on month in November, with the annual rate narrowing to about 0.6%. Wen Bin, chief economist at China Minsheng Bank, expects producer prices to stay elevated, noting oil could rebound if Middle East supply talks stall, BigGo Finance said.

Capital Economics China economist Nguyen Hoang Nam said the energy shock could keep inflation high in coming months before fading next year, and forecast a return to producer price deflation with CPI averaging 0.4% in 2027, according to India Weekly. Several institutions said the moderately loose policy stance is unlikely to change because of higher PPI.

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