Summary

  • China said its October producer price index (PPI) rose 5.7% from a year earlier, the highest level since June 2022.
  • Over the same period, the consumer price index (CPI) rose only 0.7% from a year earlier, indicating deflationary pressure remains.
  • The shock from higher raw-material prices driven by energy costs and AI industry investment is likely to persist for now, but producer prices are expected to turn downward again in 2027.

Forecast Trend Report by Period

China’s producer-price inflation accelerated to its fastest pace in more than four years in October as surging energy costs pushed factory-gate prices higher, while consumer inflation slowed.

China’s National Bureau of Statistics said on November 8 that the producer price index rose 5.7% in October from a year earlier, according to Bloomberg. That was the biggest increase since June 2022. It exceeded September’s 5.0% gain and topped the market forecast of 5.3%.

By contrast, the consumer price index rose just 0.7% from a year earlier in the same month. That was down from 0.9% in September and below market expectations. Core CPI, which excludes food and energy, rose 0.8%, matching its lowest level this year.

The increase in producer prices was driven by higher raw-material costs linked to geopolitical tensions in the Middle East and increased investment in the artificial intelligence industry. Nine industries, including coal mining, oil and gas production, and fuel processing, contributed more than 6 percentage points to the overall rise in producer prices.

Companies’ purchase prices for raw materials also rose 7.9% from a year earlier, the biggest increase since June 2022. Even so, weak domestic demand and price competition among companies continue to limit their ability to pass higher costs on to finished goods prices. Producer prices rose in only half of the country’s 30 major industries.

Eric Zhu, an economist at Bloomberg Economics, said the increase in producer prices reflected external price shocks tied to energy and AI-related products. The weaker-than-expected consumer inflation reading, by contrast, shows deflationary pressure still persists across much of China’s economy outside the energy and technology sectors.

China’s economy posted a modest recovery in the third quarter. Still, the rebound in domestic demand remains limited because of the property-market slump and weak household spending. Shipment prices for consumer goods have fallen for more than three years, underscoring companies’ weakening ability to pass on costs.

Nguyen Hoang Nam, China economist at Capital Economics, said the shock from higher commodity prices will likely persist for now but ease next year. He expects producer prices to turn negative again in 2027, while consumer inflation averages 0.4% a year.

Suehyeon Lee