China’s Factory Inflation Seen Quickening to 26-Year High

(Bloomberg) -- Prices that Chinese companies charge for their output likely rose at the fastest pace in more than two decades last month, driven by the continued commodity boom and an energy crunch, coupled with a resurgence of Covid and bad weather. 

The producer price index is expected to have climbed 12.3% last month from a year earlier, according to the median estimates in a Bloomberg survey of economists, the fastest pace since late 1995. Producer prices in China have been rising rapidly in the past few months, first due to the global commodity price rally and then output curbs caused by a power crunch nationwide. 

While the impact of higher PPI on global inflation is small, faster inflation is likely to worsen the situation for domestic businesses, especially smaller ones which were already facing higher costs and weak domestic demand. Premier Li Keqiang said recently the government needs to address the problems faced by small and medium-sized companies, including commodity-driven costs, and further price rises may add to calls for policy makers to step up support as the economy slows. 

What Bloomberg’s Economists Say...

“ Government controls on energy use are fueling gains in material prices -- driving up factory-gate inflation from already super-heated levels. A jump in vegetable prices may ease food price deflation -- relieving downward pressure on headline CPI inflation.”

-- Eric Zhu

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Consumer inflation, which has stayed relatively low due to falling pork prices, likely accelerated to 1.4% in October. A recent spike in vegetable prices likely offset some of the deflationary effect of falling pork prices and pushing food and headline consumer inflation higher in the month. 

The expected pickup in CPI suggests that businesses have become more willing to pass on the higher costs to customers despite weak demand at home. Several food companies have already announced price hikes of up to 15%, including Haixin Foods, Anjoy Foods and Jiajia Food, due to rising costs for raw materials. 

The National Bureau of Statistics is scheduled to release the October inflation data at 9:30 a.m. Wednesday Beijing time. 

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With assistance from Bloomberg