China has a big inflation problem and is driving prices up around the world

The cost of products leaving China’s factories soared at another record rate last month, and there are increasing signs that consumers are beginning to feel the pain.

The producer price index rose 13.5% in October from a year earlier, accelerating from 10.7% in September, the National Bureau of Statistics of China said on Wednesday. Last month’s increase was already the fastest since the government began publishing such data in the mid-1990s, according to Eikon Refinitiv.

And now it seems that the higher costs are seeping in. China’s consumer price index rose 1.5% in October from a year earlier, double the rate from the previous month. and the fastest rate of increase since September 2020.

“We are concerned about the pass-through from producer prices to consumer prices,” said Zhiwei Zhang, chief economist at Hong Kong-based Pinpoint Asset Management. “The companies managed to use their input inventories as a buffer to avoid passing the higher costs on to their customers sooner, but their inventories have been depleted.”

October marks the first time that consumer inflation has recovered in five months. The rate had been gradually decreasing since May. But rising energy bills and food supply chain disruptions have started to drive prices higher.

Last week, Ministry of Commerce of China issued an advisory ordering local governments to encourage families to stock up on food and other daily essentials as bad weather, power shortages and Covid-19 restrictions threatened to disrupt supplies. The sudden warning triggered panic buying between the public and frenzied speculation online.
World food prices rose 30% in one year

Authorities attributed the rise in consumer inflation to rising costs for vegetables and gas.

Vegetable prices rose 16% in October, mainly due to heavy rains and increased transportation costs, according to a statement from Dong Lijuan, senior statistician at the NBS. Extreme weather has damaged crops and authorities have acknowledged that the cost of moving between regions could increase due to strict measures aimed at containing Covid-19 outbreaks.

Gasoline and diesel prices rose more than 30%, Dong said.

An ongoing energy crisis was also the main contributor to rising producer price inflation, as the cost of mining and processing coal has risen.

The second largest economy in the world It is already growing at the slowest pace in a year as energy problems, shipping disruptions and a deepening real estate crisis take their toll.

Rising inflation in the country is also causing global concerns. Rising producer inflation is “fueling upward pressure on global inflation,” considering China’s role as the world’s factory and its importance to the global supply chain, according to Ken Cheung, chief Asian currency strategist at Mizuho Bank.

Producer inflation may also remain high “for a while, probably through the winter,” said Jing Liu, senior economist for Greater China at HSBC. He added that energy prices could also continue to rise and he expected consumer inflation to continue to rebound.

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