China inflation: consumers set to feel ‘stronger’ knock-on effect of rising factory-gate prices
- China’s producer price index (PPI) rose by 13.5 per cent in October from a year earlier, while the consumer price index (CPI) rose by 1.5 per cent last month
- Higher raw material prices, which have plagued mainly the metals-dependent industries, are now starting to spread to consumer goods
There are early signs that upstream producers in China may have started to pass on rising costs to downstream businesses – a shift that was underscored when both the consumer and factory-gate indices beat expectations on Wednesday, although analysts do not expect this to be a long-term trend.
But they also concede that higher raw material prices, which have plagued mainly the metals-dependent industries, are now starting to spread into consumer goods industries as well.
“The pass-through from PPI to CPI becomes stronger. Looking ahead, PPI inflation may stay elevated for a while, likely through the winter. Energy prices, especially for coal and natural gas, may continue to rise,” said Jing Liu, senior economist for Greater China at HSBC.
“CPI inflation may pick up further from the current level of 1.5 per cent, as more price pressure shifts from PPI to CPI,” Liu added. “Yet, we expect the CPI to stay below the target of 3 per cent. We expect the People’s Bank of China to have more loosening bias for the rest of the year to buffer the economic slowdown.”