China factory prices climb at fastest pace in over 25 years

Factory gate prices in China are soaring at the fastest pace in over two and a half decades.

The world’s second largest economy posted a 13.5 per cent annual jump in prices for raw materials last month, strengthening the prospect that China could export fiery inflation across the world.

October’s reading was the highest since 1995, the National Bureau of Statistics said.

The historically elevated factory price print has been driven by an energy crisis that is crippling producers of raw materials across China. 

Commitments to reduce carbon emissions, compounded by adverse weather scuppering energy production and a mandate from Beijing to ration power usage has led to severe shortages of coal and other energy inputs.

As a result, energy prices in China have accelerated rapidly, prompting factory producers to hike prices to offset margin pressure.

Prices for goods produced in the coal mining and washing industries have more than doubled over the last year, while production material costs swelled 17.9 per cent in October.

“PPI inflation has a broader base now than in September, when it was concentrated in mining and raw materials. These two continue to lead the charge, accelerating to 66.5 per cent year on year and 25.7 per cent year on year from 49.4 per cent and 20.4 per cent respectively, but manufacturing is now also feeling the heat,” Craig Botham, chief China+ economist at Pantheon Macroeconomics, said.

Higher raw material costs is raising the prospect of consumer firms increasing prices for their goods, which could lead to China exporting inflation to other countries that rely heavily on imports from Beijing.

China’s consumer price index, a measure of inflation for finished goods, climbed to 1.5 per cent in October, the highest reading in 13 years.