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Prices in factories in China rise at the fastest rate since 1995

Factory prices in China rose at their fastest pace in more than a quarter century as record coal prices intensified inflationary pressures on companies and manufacturers.

The producer price index rose 10.7 percent in September compared to a year earlier, official data showed Thursday, the highest rate of increase since 1995. In August, the PPI added 9.5 percent. hundred.

Rising world commodity prices have raised prices at factories in China sharply this year, and a shortage of coal exacerbated the energy crisis and prompted the government to call for increased production.

The country’s producer price increases, which were also driven by base effects in 2020 in September, have been closely followed at a time when higher inflation in the US has sparked concern among consumers. policy makers.

But the figures have yet to be reflected in consumer prices in China, which rose just 0.7 percent in September, a slower pace than in August.

In addition to a possible spillover effect to Chinese consumers, producer prices have also raised concerns about higher costs for the country’s manufacturing sector, helping fuel its rapid recovery from the coronavirus pandemic, but it is now low. pressure from power shortages.

“We believe that the risk of stagflation is increasing in China, as well as in the rest of the world,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “The ambitious goal of carbon neutrality puts persistent pressure on the prices of raw materials, which will be passed on to intermediate companies.”

Trade data released Wednesday revealed that Chinese coal imports rose 76 percent year-on-year in September as it tried to alleviate shortages that have led to power rationing in factories and businesses. The data also showed resilient trade despite energy woes, with exports increasing 28 percent in dollar terms year-over-year in the same month.

The government has grappled with rising commodity prices after announcing a goal last year to achieve carbon neutrality by 2060. A state meeting in May chaired by Li Keqiang, China’s prime minister, announced that it will be ” would encourage major coal companies to increase production, “while last week Inner Mongolia authorities ordered increased production.

Sheana Yue, an assistant economist at Capital Economics, said there was little sign that energy shortages were driving up prices for finished consumer goods, adding that factory inflation in China “will not stay that high for long. weather”.

“Sooner or later, coal and metal prices are likely to decline as property construction slows,” he said.

In addition to power shortages, China’s economy is under pressure from a slowdown in its vast real estate sector and financial struggles at some of its biggest real estate developers, including Evergrande, which this week defaulted on interest payments from the dollar-denominated bonds.

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