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

The producer price index rose 10.7 per cent in September compared with a year earlier, official data showed on Thursday, the highest rate of increase since 1995. In August, PPI added 9-5 per cent.

Soaring global commodity prices have pushed factory gate prices in China sharply higher this year, with a shortage of coal compounding an energy crisis and leading to calls from the government for higher production.

But the figures have not yet fed through into consumer prices in China, which in September rose just 0.7 percent, a slower pace than in August.
The country’s producer prices increases, which in September were also boosted by base effects in 2020, have been closely watched at a time when higher inflation in the US has sparked concern among policymakers.

Apart from a potential spillover to Chinese consumers, producer prices have also raised worries over higher costs for the country’s manufacturing sector, which helped drive its rapid recovery from the coronavirus pandemic but is now under pressure from power shortages.

“We think the risk of stagflation is rising in China as well as the rest of the world,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “The ambitious goal of carbon neutrality puts persistent pressure on commodity prices, which will be passed to downstream firms”.