Producer prices rose 5.0% from a year earlier in September and factories' input costs rose 6.9%, while consumer prices rose 0.9%. Exports jumped 29.6%. China's benchmark lending rates were left unchanged on Tuesday.
China's third-quarter growth figure drew most of the attention on Monday. Price data published the week before may matter more to the rest of the world.
Industrial producer prices rose 5.0% in September from a year earlier and 1.2% from August, the National Bureau of Statistics reported last week. The prices factories paid for materials and energy rose faster still, by 6.9%. At the consumer level, inflation was 0.9%, and core inflation, which excludes food and energy, was 1.0%.
On Tuesday, China's one-year loan prime rate was held at 3.0% and the five-year rate at 3.5%. The Shanghai Composite edged up about 0.1% to 3,735.37.
Squeezed in the middle
The gap between the two producer measures is the first thing to notice. Factories paid 6.9% more for inputs and charged 5.0% more for their output, so output prices rose more slowly than input costs, a sign that factories absorbed part of the increase. The 1.2% monthly gain in producer prices shows the pressure was still building in September rather than fading.
The gap between producers and consumers is the second. With factory prices up 5.0% and consumer prices up 0.9%, the price increases are being felt by businesses, not yet by Chinese households.
Where the prices go
The export figures show where some of those higher prices may land. September exports rose 29.6% from a year earlier to 3,034.4 billion yuan, and imports 24.6%. When a country whose exports are growing at that pace raises its factory-gate prices, its trading partners pay more for what they import.
That would reverse a familiar pattern. For much of the past few years, Chinese goods have pushed prices down abroad. If September's numbers persist, China becomes a source of goods inflation at a time when the Federal Reserve, the European Central Bank and the Bank of Japan all meet within the next 10 days, each already contending with higher energy costs.
The growth figure fits the same picture of strong output and weak demand at home. The economy grew 4.5% from a year earlier in the third quarter, at the bottom of the government's 4.5% to 5% target range for the year, and 1.2% from the second quarter. Goldman Sachs economists have said favorable weather and the timing of the Golden Week holiday helped the quarter.
Market implications
One reading is that China is exporting inflation. Producer prices are rising month over month, input costs are running ahead of output prices, and export values are surging, which would feed higher import prices in the U.S., Europe and Japan.
A second reading is that the producer data mostly reflect imported energy costs. Domestic demand remains weak, consumer prices are below 1%, and a fall in oil prices would take much of the producer inflation with it.
The input-cost figure leaves room for both. A 6.9% rise in what factories pay is what an energy shock passing through would look like; the strength of exports is what would let factories keep passing it on.
What to watch
China's official purchasing managers' indexes on Oct. 31, especially their price components; import-price data in the U.S. and Europe for signs of Chinese pass-through; the yuan; and oil prices. Producer prices that keep rising even as crude stabilizes would point to a broader shift in China's role in global inflation.