China’s producer prices rose 5.7% year over year in October, above the 5.3% market forecast and the highest reading since June 2022. Higher oil prices lifted costs for producers, while consumer demand remained weak. The data comes just ahead of the release of US October inflation figures, which markets are watching for clues about the Federal Reserve’s December rate decision.
Rising factory-gate prices do not mean that costs have been fully passed on to consumers. China’s consumer price index increased 0.7% from a year earlier in October, a sharp contrast with the rise in producer prices. For markets, the key questions are whether energy costs will feed through from upstream industries to goods and services, and whether US inflation will shift expectations for Fed policy.
Oil lifts mining costs as consumer goods prices fall
China’s National Bureau of Statistics said prices in the mining sector, which includes mining and oil and gas, rose 27.9% year over year. Prices in the processing industry increased 3.5%, while consumer-goods prices fell 0.1%. The gap between sectors points to a pronounced rise in energy-related costs, without an equivalent increase in prices for finished and consumer goods.
With domestic demand subdued, manufacturers may have to absorb some of the cost pressure. If input costs continue to rise, company margins and future pricing could come under pressure. But consumer-goods prices were still falling in October, so the PPI increase alone does not show that consumers are facing a comparable rise in prices.
US CPI in focus ahead of the Fed’s December decision
On October 28, the Federal Reserve held its federal funds rate at 3.75% to 4.00%. Two policymakers voted in favor of a rate increase. US consumer prices rose 3.7% year over year in September, while energy prices climbed 20.4%. China’s factory-price data also points to oil shocks continuing to work through global supply chains, but the effect on US consumer inflation must be assessed alongside domestic US data.
Markets broadly expect US CPI to rise 0.3% month over month in October, with core CPI, excluding food and energy, forecast to increase 0.2%. The figures are due Tuesday, as attention turns to the Fed’s policy path in December. Markets had priced in about a 78% probability of a December rate hike, and expectations had also influenced US stock trading. China’s PPI measures costs at the production level; whether it changes the Fed’s assessment will depend on subsequent data, including US CPI.