China’s Factory Gate Prices Rise 3.8 Percent With the Whole Gain Above the Consumer Stage
China’s producer prices rose 3.8 percent in August against a year earlier, up from 3.5 percent in July, and consumer prices rose 0.8 percent, up from 0.5 percent, the statistics bureau said on Wednesday.
The producer index has four stages and they do not agree. Prices rose 17.8 percent at the extraction stage, 6.7 percent for raw materials and 3.1 percent in processing, while prices of consumer goods fell 0.5 percent.
The gain thins out as it moves down the chain
| Producer prices, August, year on year | Change |
|---|---|
| Extraction | up 17.8 percent |
| Raw materials | up 6.7 percent |
| Processing | up 3.1 percent |
| Consumer goods | down 0.5 percent |
As published. The first three stages together make up what the bureau calls the means of production, which rose 5.0 percent.
The distance between the top and the bottom of that table is 18.3 percentage points on our calculation, and the ordering is strictly downward. Every stage nearer the finished product carries less of the increase than the one before it, and by the time the chain reaches consumer goods the sign has changed.
The sector detail says the same thing. Coal mining and washing rose 26.6 percent, non-ferrous metal mining 21.1 percent, non-ferrous smelting and rolling 20.8 percent, and oil and gas extraction 10.5 percent. Against those, electricity and heat supply fell 3.6 percent, pharmaceuticals 3.7 percent, and drinks and tea processing 5.3 percent.
The bureau names three causes: imported cost pressure from international crude and non-ferrous prices, industrial upgrading lifting demand in some sectors, and seasonality, with August electricity and coal demand pushing coal mining prices up 2.8 percent on the month and power supply up 1.4 percent.
Neither release counts consecutive months in either direction, so no run is reported here. The bureau states only that the monthly producer figure turned from a 0.7 percent fall in July to a 0.4 percent rise in August.
The consumer number is an energy number
Consumer prices rose 0.4 percent on the month after a 0.1 percent fall in July, and the bureau is explicit about why the annual rate widened: energy prices went from up 0.6 percent to up 4.1 percent, contributing about 0.28 percentage points of the 0.8.
Food is still falling, down 1.4 percent on the year, with pork down 11.8 percent and livestock meat down 5.1 percent, while eggs rose 15.0 percent. Non-food prices rose 1.2 percent and core prices, excluding food and energy, rose 1.0 percent. Goods and services rose at the same rate, 0.8 percent each.
Over the first eight months consumer prices averaged 0.9 percent higher, core prices 1.1 percent and producer prices 2.0 percent.
Why it matters: For China the gap between a 3.8 percent producer rate and a 0.8 percent consumer rate, 3.0 points on our calculation, is a gap between what industry is paid and what households pay, and the stage table shows it is not passing through. Producers of finished consumer goods are absorbing input costs rather than charging them on, which is a squeeze on the part of the economy the state has been trying to get households to buy from. For Gulf exporters the reading is narrower and more direct: oil and gas extraction prices in China are up 10.5 percent.
Outlook: September figures land in mid October. The line to watch is whether the consumer goods stage stops falling, since it is the only stage that has not turned, and whether the energy contribution to consumer prices holds after moving from 0.6 to 4.1 percent in a single month.
Sources: National Bureau of Statistics of China.
