China's factory-gate inflation jumps to 5% in September, highest since 2022, as oil shock lifts costs

China's producer price index rose 5% from a year earlier in September, accelerating from 3.8% in August and beating the 4.5% median forecast in a Reuters poll. On a monthly basis producer prices climbed 1.2%, after 0.4% in August. It is the fastest factory-gate inflation since 2022.

The National Bureau of Statistics attributed the rise to crude oil and non-ferrous metals, with petroleum extraction prices up 14.5% month on month. Coal supply disruptions also played a part. In other words, this is a supply and commodity shock driven by the oil spike, not a sign of a broad rebound in industrial demand.

Consumer prices tell the other half of the story. CPI rose 0.9% year on year, up from 0.8% in August but short of the 1.0% forecast, and core CPI held at 1.0%. Gasoline prices rose 16.6% from a year earlier and added about 0.47 percentage point to headline CPI, so outside fuel, household prices are barely moving.

The widening gap between factory and consumer prices means manufacturers are absorbing higher input costs that weak household demand does not let them pass on. Capital Economics expects producer prices to fall back next year as the commodity shock fades. For markets, the readings put China's input costs, and the margins of its exporters, alongside oil as a channel through which the Middle East conflict reaches global prices.