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China’s factory gate inflation hits 26-year high as pressures grow

China’s factory gate prices rose at the fastest pace in 26 years in October, beating forecasts and further squeezing profit margins for producers already grappling with soaring coal prices and other commodity costs due to a power crunch.

The producer price index (PPI) climbed 13.5% from a year earlier, faster than the 10.7% rise in September, the National Bureau of Statistics (NBS) said in a statement.

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

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

However, the power crunch has since eased somewhat following government intervention to stabilise the coal market.

China’s consumer price index (CPI) grew 1.5% in October year-on-year, quickening from September’s 0.7% rise and beating the 1.4% gain tipped by the Reuters poll, according to NBS data.

That suggests the inflation pass-through from China’s producers to consumers has been generally subdued, although there are signs cost pressures are increasingly being felt by households.

Several Chinese food giants have announced increases in retail prices in recent weeks, as rising production costs erode profit margins, including Foshan Haitian Flavouring And Food 603288.SS, vinegar producer giant Jiangsu Hengshun600305.SS, and frozen food firm Fujian Anjoy Foods603345.SS.

The PPI inched up 2.5% on a monthly basis, compared with the 1.2% uptick in September.

Other recent indicators show China’s economy is losing steam with growth widely expected to slow further in the fourth quarter from a one-year low of 4.9% in the third quarter. Factory activity shrank for a second straight month in October.

Slowing economic growth and soaring factory inflation have fuelled concerns over stagflation, which could mean China moves cautiously on loosening monetary policy.

Core inflation, which strips out volatile food and energy prices, stood at 1.3% rise in October from the previous year, higher than the 1.2% uptick in September.
Source: Reuters (Reporting by Liangping Gao and Gabriel Crossley; Editing by Sam Holmes)

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