China has a serious inflation problem that drives prices up around the world

(CNN) – China’s inflation problem is getting worse.

The cost of goods leaving China’s factories broke another record last month, and there are increasing signs that consumers are beginning to feel the impact.

The producer price index rose 13.5% in October from a year ago, climbing from 10.7% in September, the National Bureau of Statistics of China reported on Wednesday. Last month’s increase was the fastest since the government began publishing this data in the mid-1990s, according to Eikon Refinitiv.

And now it seems that higher costs are seeping down. China’s consumer price index rose 1.5% in October from a year ago, double the previous month and the fastest rate of increase since September 2020.

Concern about the pass-through of prices to the consumer

“We are concerned about the pass-through from producer prices to consumer prices,” said Zhiwei Zhang, chief economist at Hong Kong-based Pinpoint Asset Management. “The companies had managed to use their input inventories as a buffer to avoid passing the higher costs on to their customers, but their inventories have been depleted.”

October marks the first time that consumer inflation has rebounded in five months. The rate had gradually decreased since May. But rising electricity bills and disruptions in the food supply chain have started to fuel prices.

Last week, the Ministry of Commerce of China issued a notice ordering local governments to encourage families to stock up on food and other essentials as bad weather, power shortages and COVID-19 restrictions threatened to disrupt supplies. The sudden warning triggered panic buying between the public and frenzied speculation on the Internet.

Authorities attributed the rise in consumer price inflation to rising costs for vegetables and fuel.

The impact of increased fuel

Vegetable prices soared 16% in October, mainly due to heavy rains and rising transportation costs, according to a statement by Dong Lijuan, a senior statistician at NBS. Extreme weather has hurt crops, and authorities have acknowledged that the cost of transport between regions could rise due to strict measures aimed at containing outbreaks of Covid-19.

Gasoline and diesel prices rose more than 30%, according to Dong.

The current power shortage was also the main factor contributing to rising producer price inflation, as the cost of mining and processing coal has risen.

The second economy in the world It is already growing at the slowest pace in a year, as energy problems, maritime transport disruptions and the worsening real estate crisis take their toll.

Rising inflation in the country is also causing concern around the world. Rising producer inflation is “fueling upward pressure on global inflation,” taking into account China’s role as the world’s factory and its importance in the global supply chain, according to Ken Cheung, chief currency strategist. Asia Bank of Mizuho Bank.

Producer inflation may also remain high “for a while, probably into the winter,” said Jing Liu, HSBC senior economist for Greater China. He added that energy prices may also continue to rise, and that consumer price inflation is expected to continue to rebound.