China's factory inflation hits 4-year high
What's the story
China's producer prices surged by 5% in September, the highest increase since June 2022. The rise is mainly due to higher energy and raw material costs amid supply disruptions from the Middle East conflict. However, consumer inflation remained below expectations, highlighting a gap between rising industrial costs and weak household demand.
Economic indicators
PPI jumps to 5% year-on-year in September
The producer price index (PPI) jumped 5% year-on-year in September, up from August's 3.8% and beating economists' forecast of a 4.5% increase, data from China's National Bureau of Statistics showed on Wednesday.
This sharp rise is mainly attributed to higher oil and commodity prices that have increased production costs amid transport disruptions, adverse weather conditions, and geopolitical tensions affecting global supply chains.
Inflation disparity
Consumer inflation remains below expectations
Despite the sharp rise in factory prices, consumer inflation has not seen a similar increase.
The consumer price index (CPI) rose only 0.9% year-on-year in September, slightly higher than August's 0.8% but below economists' expectations of a 1% rise.
This gap highlights the uneven nature of China's economic recovery and continued weakness in household spending despite government efforts to stimulate economic activity.
Price pressures
Core CPI and gasoline prices
The Core CPI, which excludes volatile food and energy prices, remained unchanged from August at a 1% year-on-year increase.
Gasoline prices also rose sharply by 16.6% in September, contributing about 0.47% points to the headline consumer inflation rate.
However, underlying price pressures have remained subdued amid weak domestic demand, limiting businesses' ability to pass on higher costs without risking sales losses.
Policy response
China takes steps to boost growth
In light of these challenges, China has announced additional measures to support growth.
On October 9, Beijing approved an extra 550 billion yuan ($82.15 billion) in unused local government bond quota for infrastructure and other spending.
This comes on top of September's announcements of mortgage subsidies aimed at boosting the property market and household demand.