Chinese factory inflation reaches 26-year high

Consumer Price Index doubles between September and October

Chinese factory worker                                 
Chinese factories and cities contend with ongoing energy crisis - Photo:Shutterstock

Inflation is continuing to afflict the Chinese economy, with coal prices soaring and a squeeze on profit margins for producers.

The People's Republic of China was the first to shut down because of the Covid-19 crisis. China was  also the first to emerge from the pandemic and the only developed economy to record positive GDP growth in 2020.

This trend continued for much of 2021, to the extent that Beijing felt that economic momentum was strong enough to weather a slew of regulatory crackdowns. 

However, as in the United States and much of Europe, inflation has emerged as a persistent thorn in the sides of China’s post-coronavirus recovery. 

Rise faster than expected

On Wednesday, the National Bureau of Statistics announced that China’s Producer Price Index rose by 13.5% year-on-year in October. This constituted the largest rise since the government began releasing PPI data in the mid-1990s, beating the previous record set by September’s 10.7% increase. 

October saw China wrestle with a worsening energy crisis. The increase in coal and natural gas prices to record highs forced factories in many northeastern provinces to scale back production. After a number of cities suffered blackouts, Beijing introduced power rationing. 

The situation was further complicated by the Chinese government’s introduction of stricter regulations aimed at reducing on carbon emissions. As the crisis deepened, Beijing released strategic reserves in order to bring the prices of key commodities down and increased pressure on coal miners to cut their prices. 

This trend has continued into November, with coal mines in Shanxi province recently reported to have been forced by the National Development and Reform Commission to cap the price of 5,500-NAR grade coal at 900 yuan ($141) per ton. 

CPI accelerates

The effect of rising production costs has started to be felt by consumers. The NLB also reported that China’s Consumer Price Index rose by 1.5% year-on-year last month. The fastest CPI print in 13 months, this reading was double the rate recorded in September. 

With China also forced to contend with the global disruption in supply chains, the country’s Ministry of Commerce last week ordered local governments to tell citizens to stockpile “daily necessities” to “meet the needs of daily life and emergencies”.

Administrations were also told to “closely focus on the goal of ensuring supply and stabilizing prices.”

The Shanghai Composite Index closed Wednesday down by 0.4% at 3,482, almost flat to the level at which it began 2021. 

The Hang Seng Index closed 0.7% higher at 24,996.15, down 9% since the start of the year.

Further reading: Biden administration hints at releasing oil strategic reserves

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