China's Factory Prices Rose 5.7% in October, the Fastest Since 2022, While Shoppers Barely Paid More

The war in the Middle East is now showing up on China's factory floors. Producer prices rose 5.7% in October from a year earlier, the National Bureau of Statistics said on Monday, up from 5.0% in September and above the 5.3% economists had expected. It was the biggest annual increase since June 2022, and the third straight month of acceleration.

Shoppers are not feeling it. Consumer prices rose just 0.7% in October, down from 0.9% in September and a touch below forecasts. Core inflation, which strips out food and energy, eased to 0.8% from 1.0%, CNBC reports.

A shock that starts in the ground

The increase is concentrated at the very top of the supply chain. Mining prices were up 27.9% from a year earlier and raw materials 11.6%, while prices for consumer goods leaving factories slipped 0.1%. Factories are paying more for their own inputs too: purchase prices rose 7.9%, with fuel and power up 18.6% and chemical feedstocks up 16.8%.

By industry, coal mining and oil and gas extraction led with gains of around 35%, ING calculates. On the consumer side, food pulled hard the other way. Food prices fell 2.9%, a 13 month low, as fresh vegetables dropped 16.9% and pork 8.6%. Gasoline was the biggest single driver of what consumer inflation there was.

Costs, not demand

Economists read the numbers as an imported cost shock rather than a sign the economy is heating up. Weak household spending is stopping companies from passing higher costs on to buyers, and Capital Economics told Reuters it expects producer prices to fall back into deflation next year, with consumer inflation averaging 0.4% in 2027.

The same oil shock is hitting everyone else. Europe has already tapped emergency oil stocks ahead of winter, and central banks in Washington, London and Frankfurt are raising rates or preparing to. China's factories, for now, are swallowing the bill themselves.

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