China: Consumer price inflation drops to six-month low in September; producer prices surge
October 13, 2021
Consumer prices were flat from the previous month in September, slowing down from the 0.1% increase recorded in August. September's result marked the weakest reading since June.
Consumer price inflation came in at 0.7% in September, which was down from August’s 0.8%. September's figure represented the weakest inflation rate since March. In addition, the trend pointed down slightly, with annual average inflation coming in at 0.5% in September (August: 0.6%). Lastly, producer price inflation rose to 10.7% in September from the previous month's 9.5% and marked a multi-decade high. Surging producer prices in recent months can be attributed to higher global energy prices and supply constraints, although pass-through to consumer prices has been negligeable amid soft demand.
Producer price inflation should stay elevated in the coming months, and could be boosted further in the near term by the government’s decision in October to partially liberalize power prices in a bid to ease the recent electricity shortage. For instance, coal-fired power prices will now be able to fluctuate 20% from base levels, compared to 10% previously. The government’s measures should also feed through to higher consumer prices, though consumer inflation will remain fairly mild nonetheless.
On producer prices, Ho Woei Chen, economist at United Overseas Bank, commented:
“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%).”