Chinese inflationary pressures intensified sharply last month

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Chinese price pressures intensified in September with both consumer and producer price inflation topping expectations.

According to the NBS, consumer price inflation (CPI) grew by 1.9% from a year earlier, a result was well ahead of the 1.3% pace seen in August and forecasts for an acceleration to 1.6%.

It was the fastest annual pace since June. Over the month, CPI rose by 0.7%.

Breaking down the headline figure, the NBS reported that food inflation grew by 3.2% over the past year, up from 1.3% in August.

Pork prices, a staple of the Chinese diet, rose by 5.8% over the same period, a slight deceleration on the 6.4% pace reported previously.

That slowdown was more than offset by a huge 10.7% increase in vegetable prices in September, leaving them up 6.7% on the levels of a year earlier.

The NBS suggested that adverse weather conditions in Southern China over summer contributed to the surge in prices.

Non-food inflation rose by 1.6% from a year earlier, not only above the 1.4% rate of August but also the fastest pace seen in over a year.

On that basis it appears that inflationary pressures are building.

Indeed, fitting with that mantra, producer price inflation (PPI) created history of sorts, logging its first year-on-year increase in close to five years.

PPI rose by 0.1% in the 12 months to September, a figure that was above the 0.8% contraction of August and expectations for a smaller decline of 0.3%.

In September alone it accelerated by 0.5%.

Not since January 2012 has PPI increased on an annualised basis. The 54-month deflationary spiral in upstream prices appears to be over.

It also hints that there may be upside risks building for next week’s Q3 GDP release, scheduled to arrive on Wednesday.


Financial markets are trading mixed following the data release, seemingly taking the view that while it points to an ongoing improvement in Chinese economic activity, it also reduces the likelihood of further fiscal and monetary stimulus from policymakers.

Chinese stocks are trading marginally lower while commodity futures — reacting to the strength in the PPI figure — have reversed losses and are now trading higher.

The Australian and New Zealand dollars — proxies for sentiment towards the Chinese economy given their close economic ties — are also pushing higher, sitting with gains of 0.3% and 0.4% against the US dollar.

There has been negligible reaction in the Chinese yuan, either in onshore or offshore trade. The USD/CNY currently buys 6.7243, just shy of the six-year high seen earlier in the week.