China's factory-gate prices rise 5% in September, fastest since June 2022

Factory-gate prices accelerate

China's producer price index rose 5% year on year in September, the National Bureau of Statistics said on 14 October. That was up from 3.8% in August and the fastest factory-gate inflation since June 2022, when the PPI rose 6.1%.

The reading beat the 4.5% rise economists polled by Reuters had expected. Consumer prices rose more slowly: the CPI rose 0.9% year on year, up from 0.8% in August and below the 1% forecast in the same poll.

Core CPI, which strips out food and energy, rose 1%, unchanged from August. On the month, the PPI rose 1.2%, three times August's 0.4% pace, while the CPI rose 0.2%, down from 0.4%.

The gap with consumer prices

The gap between year-on-year PPI and CPI growth widened to 4.1 percentage points in September from 3 points in August, the largest since May 2022, Wind Info said. Analysts said the gap suggests pressure on profits in midstream and downstream sectors, where weak demand makes it hard to pass on higher upstream costs.

Su Jian, director of Peking University's National Center for Economic Research, said household income and employment expectations have yet to improve significantly. Persistent sluggish income growth could weigh on consumption and increase near-term downside risks to the economy, he said.

What drove the increase

Dong Lijuan, an NBS statistician, attributed the increase to higher international crude oil and non-ferrous metal prices. Increased coal stockpiling for winter heating and temporarily tight supplies in major mining areas also drove up prices in coal mining, washing and processing, she said.

Nguyen Hoang Nam, China economist at Capital Economics, said much of the upward pressure came from commodity supply disruptions caused by the Middle East conflict, with prices rising particularly sharply in fuel processing, chemicals and non-ferrous metals. Higher oil and commodity prices, driven by transport disruptions, adverse weather and geopolitical tensions, have increased cost pressures for manufacturers, though sluggish demand has limited the pass-through to consumers, Reuters reported.

Energy showed up in consumer prices too. Gasoline prices climbed 16.6% year on year and contributed about 0.47 percentage points to CPI growth, the NBS said. Food pulled the other way: pork prices fell 10% and fresh vegetables 8.1%, together lowering the year-on-year CPI increase by about 0.33 percentage points.

Weak demand and policy support

Household spending remains subdued and private-sector confidence fragile despite a series of stimulus measures, Reuters reported, reinforcing concerns that China's recovery is driven more by exports than spending. Beijing has approved an additional 550 billion yuan (US$82.15 billion) in unused local government bond quota for infrastructure and other spending, adding to measures such as mortgage subsidies. Su suggested cutting banks' reserve requirement ratios and encouraging lower deposit rates, which could create room for cheaper lending while easing pressure on bank margins.

Markets were little changed. China's blue-chip index was down 0.1% and the Shanghai Composite up 0.1%.

A modest recovery in demand was accompanied by slower growth in financing and money supply. Outstanding aggregate social financing grew 7.1% year on year at the end of September, down from 7.2% at the end of August, the People's Bank of China said. Broad money supply, or M2, rose 7.2%, slowing from 7.5%.

What happens next

Zhou Hao, chief economist at Guotai Junan International, said a key question is whether stronger industrial momentum can gradually feed into employment, income growth and consumer confidence. If that transmission improves, he said, the divergence between producer and consumer prices could narrow from the demand side, creating a more balanced and durable recovery in 2027.

Ming Ming, chief economist at CITIC Securities, said uncertainty remains over how geopolitical risk affects oil prices. Winter coal stockpiling could support coal prices through year-end, and a low comparison base could keep producer prices elevated, he said. He expects core CPI growth to fluctuate around 1% for the rest of the year, held back by the pace of consumer demand. Consumer prices should keep rising mildly, he said, because food prices remain below year-earlier levels.

Nguyen of Capital Economics expects producer prices to fall back next year.