China's September PPI accelerated CPI lower than expected! Highlighting increased costs for manufacturers, domestic demand remains weak

China's producer price index (PPI) increased the most in more than four years in September, mainly because oil and commodity prices soared, and semiconductors and other electronics required for artificial intelligence (AI) became more expensive, raising production costs for manufacturers. The increase in consumer price index (CPI) in September was lower than expected, as weak domestic demand suppressed overall price increases.

China's National Bureau of Statistics said that PPI increased by 5% annually in September, the fastest growth rate since June 2022, and higher than market estimates of 4.5%. After three years of decline, PPI has now risen for seven consecutive months. The CPI increased by 0.9% year-on-year in September, lower than market expectations of 1%. Among them, gasoline prices surged 16.6% in September compared with the same period last year, contributing approximately 0.47 percentage points to the CPI increase.

The data showed Chinese manufacturers are raising prices but weak consumer demand continues to tame inflation, fueling concerns that China's economic recovery remains uneven and is driven primarily by exports rather than consumption.

Nguyen Hoang Nam, China economist at Capital Economics, said in an interview: "Much of the upward pressure still comes from commodity supply disruptions caused by conflicts in the Middle East, with price increases in fuel processing, chemicals and non-ferrous metals being particularly sharp."

Ruan Huangnan pointed out that while domestic demand remains weak, China's CPI will fall back to near zero in 2027, PPI will also fall again, and the current external price shock will eventually subside.

Ahead of the September inflation data, the Chinese government launched incremental stimulus measures, including mortgage subsidies, injecting funds into banks, and new infrastructure spending. While the measures show Beijing is stepping up efforts to support growth, economists say stronger fiscal stimulus will be needed to get prices rising again in China.