China Consumer Inflation Slows As Factory Prices Rise 5.7%

China's annual consumer inflation slowed to 0.7% in October, while prices charged by industrial producers rose 5.7%, according to the National Bureau of Statistics release on 9th November. September's annual increases were 0.9% and 5.0%, respectively.

The slowdown extended beyond food and energy. Core consumer inflation, which excludes those two categories, eased to 0.8% from 1.0%. Consumer prices overall were unchanged from September after rising 0.2% in that month.

The bureau said food prices fell 1.0% during October, subtracting about 0.17 percentage points from the monthly consumer price index (CPI). It attributed cheaper vegetables and fruit to favourable weather and cited ample supplies of pork and aquatic products.

Gasoline moved in the opposite direction. Its 4.2% monthly increase added about 0.14 percentage points to CPI, the bureau said. Holiday travel also pushed up hotel accommodation, air fares and travel agency charges, together adding about 0.04 points.

Compared with a year earlier, food prices were down 2.9%, while energy prices were up 9.9%. Gasoline alone rose 22.4% and contributed about 0.63 percentage points to annual consumer inflation. Services prices rose 0.7%, a smaller increase than September's 0.8%.

Factory Inflation Accelerates Over The Year

The producer price index (PPI), which measures prices at the factory gate, rose 0.7% during October. That was slower than September's 1.2% monthly increase, even as the annual rate accelerated.

The gap between annual producer and consumer inflation therefore widened to 5.0 percentage points, from 4.1 points in September, calculated from the bureau's figures. Our US inflation report also examines why annual and monthly comparisons need to be kept distinct.

The bureau attributed much of the monthly producer increase to energy. It said six industries, including oil and gas extraction, coal mining, refined petroleum products and gas supply, contributed about 0.61 percentage points, more than four fifths of the total rise. Its explanation cited international energy prices and preparations for winter demand.

Domestic Food And World Commodities Diverge

International food commodity prices remained higher than a year earlier, despite China's annual retail food decline. The UN Food and Agriculture Organization's 6th November release put its October food price index at 133.9 points, down 1.2% from September but up 5.9% from a year earlier. The separate dispute over agricultural purchase commitments is covered in our US-China trade report.

FAO tracks internationally traded food commodities, while China's food CPI measures domestic consumer prices. Their annual readings point in different directions. FAO reported monthly declines in cereals, dairy and meat, but increases in sugar and vegetable oils. Its basket does not establish what caused China's retail food decline.