China factory gate prices fall for first time in 2 years

BEIJING – Factory gate prices in China were down for the first time in nearly two years last month, official data showed Wednesday, as falling global commodity prices made their mark on an economy ailing under strict Covid controls.

The producer price index (PPI) fell by 1.3 percent on-year in October, according to the National Bureau of Statistics (NBS), pushing it into negative territory for the first time since December 2020.

The figure represented a reduction from September’s 0.9 percent rise.

“In October, demand in some industries rose, and the national PPI rose slightly month-on-month,” said NBS statistician Dong Lijuan.

“But owing to the high comparison base from the same period last year, the year-on-year figure went from growth into decline.”

“Factory-gate inflation is likely to continue falling over the coming quarters due to a further decline in global commodity prices and a higher base for comparison,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“We expect it to stay in negative territory through the final months of the year and much of 2023.”

The consumer price index – the main gauge for retail inflation – rose by 2.1 percent on-year in October, the NBS said, moderating slightly from September’s two-year high of 2.8 percent.

Consumers in China have been largely spared the impact of a global surge in food and energy costs following Russia’s invasion of Ukraine.

“Under the impact of factors including a drop in consumer demand after the (National Day) holiday and last year’s high base of comparison, the rise in consumer prices somewhat fell back,” Dong said.

China is the last major economy wedded to a zero-Covid strategy, stamping out emerging outbreaks as they occur through snap lockdowns, mass testing and strict quarantines.

Authorities in areas where cases arise frequently invoke the policy to shut down businesses and confine people to their homes at short notice.

Much of the country also remains under a patchwork of travel restrictions, roiling international supply chains and hammering domestic demand.

The Chinese economy beat expectations to grow 3.9 percent in the third quarter, but analysts expect that it will fall well below this year’s official growth target of around 5.5 percent.