China: Producer Prices rose to record highs – UOB

Economist at UOB Group Ho Woei Chen, CFA, comments on the release of the Producer Prices in the Chinese economy.

Key Takeaways

“China’s Producer Price Index (PPI) inflation surged to a record high of 10.7% y/y in September (Bloomberg est: 10.5%; Aug: 9.5%) while Consumer Price Index (CPI) rose at a more subdued pace of 0.7% y/y (Bloomberg est: 0.8%; Aug: 0.8%) due to a larger food price deflation.”

“We estimate the impact of the electricity price hike will bring the PPI close to 12% y/y in 4Q21. With the PPI averaging 6.7% y/y YTD and further upside price pressure, we are raising our full-year PPI forecast to 8.0% from 7.5% (2020: -1.8%).”

“CPI inflation averaged just 0.6% y/y YTD as a result of limited pass-through from higher PPI. Having said that, we expect CPI gains to pick up in 4Q21, due to a low base of comparison while pass-through from higher energy prices is also expected to increase. For now, we maintain our full-year 2021 CPI forecast at 0.8% (2020: 2.5%) with consumer price inflation expected to rise to 1.7% y/y in 4Q21.”