China factory exit inflation hits 26-year high as pressures mount

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Birds fly over a closed steel plant where the chimneys of another working factory are seen in the background, in Tangshan, Hebei province, China, February 27, 2016. REUTERS / Kim Kyung-Hoon / File Photo

  • Oct PPI, IPC speed up, increase faster than expected
  • Chinese companies face soaring material costs
  • Price pressures reinforce fears of ‘stagflation’

BEIJING, Nov. 10 (Reuters) – China’s ex-factory prices rose at the fastest pace in 26 years in October, beating expectations and further squeezing profit margins for producers already grappling with soaring coal prices and other commodities due to a shortage of electricity.

The Producer Price Index (PPI) rose 13.5 percent from a year earlier, faster than the 10.7 percent rise in September, the National Bureau of Statistics (NBS) said in a statement.

It was at a pace not seen since July 1995 and was faster than the 12.4% predicted by analysts in a Reuters poll.

The jump was fueled by higher raw material costs and cuts in factory production, as government restrictions on carbon emissions and soaring prices for coal, a key fuel for power generation, drove rationing of electricity.

However, the electricity crisis has eased somewhat since the government intervened to stabilize the coal market.

China’s Consumer Price Index (CPI) rose 1.5% in October year-on-year, accelerating from September’s 0.7% rise and surpassing the 1.4% gain announced by the Reuters poll, according to NBS data.

This suggests that the pass-through of inflation from Chinese producers to consumers has been generally moderate, although there are signs that cost pressures are increasingly being felt by households.

Several Chinese food giants have announced retail price increases in recent weeks as rising production costs erode profit margins, including Foshan Haitian Flavoring And Food (603288.SS), vinegar giant Jiangsu Hengshun (600305.SS) and the frozen food company Fujian Anjoy Foods (603345.SS).

The PPI rose 2.5% on a monthly basis, compared to the 1.2% increase in September.

Other recent indicators show that the Chinese economy is running out of steam and that growth is expected to slow further in the fourth quarter, following a year-over-year low of 4.9% in the third quarter. Factory activity contracted for a second consecutive month in October. Read more

Slowing economic growth and skyrocketing factory inflation have fueled concerns about stagflation, which could mean China is being cautious about easing monetary policy.

The core inflation, which excludes volatile prices of food and energy, rose 1.3% in October compared to the previous year, higher than the 1.2% increase in September.

Reporting by Liangping Gao and Gabriel Crossley; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.


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