China Producer Inflation Rises to 5.7% as Consumer Inflation Cools to 0.7%

China's factory-gate inflation accelerated to 5.7% in October while consumer inflation cooled to 0.7%, widening the split between rising producer costs and weak household demand.

China's producer price index (PPI), the factory-gate measure, climbed 5.7% in October from a year earlier. The increase quickened from 5.0% in September and beat the 5.3% gain economists forecast in a Reuters poll.

Consumer inflation moved the other way. The consumer price index (CPI) rose 0.7% from a year earlier, down from 0.9% in September and below expectations for a 0.8% increase.

The split, in numbers

On a monthly basis, consumer prices were unchanged in October, matching forecasts. They had edged up 0.2% in September, the National Bureau of Statistics data showed.

Core inflation eased as well. Core CPI, which excludes food and energy, rose 0.8% from a year earlier. That was down from 1.0% in September and below the 0.9% forecast.

September's producer reading was already a four-year high at 5.0%. October's 5.7% therefore extends an acceleration that was already under way, rather than starting one.

The gap between producer and consumer inflation has widened to about 5.0 percentage points. That gap is a calculation, 5.7% minus 0.7%, not a figure the bureau published.

Costs that shoppers will not pay

Reuters framed the split as persistent cost pressures from higher oil prices despite weak domestic demand. Producer prices are being driven higher by energy and other input costs, InvestingLive reported.

Consumer prices show little sign of following those costs higher. That pattern suggests manufacturers and retailers are absorbing much of the cost increase rather than passing it on.

Absorption is what weak pricing power looks like. Soft domestic demand leaves firms little room to raise shelf prices, so the factory-gate surge lands on margins instead of receipts.

Both consumer readings now sit below 1%, headline and core alike. Consumer inflation is running closer to too little price growth than to any overheating concern.

An awkward mix for policymakers

The core reading is the more telling figure for domestic demand. Its slowdown points to subdued demand for services and non-essential goods, InvestingLive reported.