China economy shows signs of stagflation, price inflation: Economists

Staff labor in a manufacturing unit of bathing fits in Jinjiang in southeast China’s Fujian province Tuesday, Sept. 28, 2021.

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There are indicators of stagflation in China, as costs proceed to rise whereas the newest manufacturing information present manufacturing slowing, economists say.

China’s manufacturing unit exercise contracted greater than anticipated in October, shrinking for a second month, an official survey launched on Sunday confirmed. The official manufacturing Buying Managers’ Index for October got here in at 49.2, falling beneath the 50 stage which separates growth from contraction.

Zhang Zhiwei, chief economist at Pinpoint Asset Administration, mentioned the manufacturing index has dropped to the bottom stage because it was printed in 2005, excluding the 2008 international monetary disaster and the Covid-19 outbreak in February final 12 months.

In distinction, the output value index has risen to the very best stage because it was printed in 2016, Zhang mentioned.

“These alerts affirm that China’s economic system is probably going already going via stagflation,” he mentioned in a observe on Sunday.

Stagflation is when the economic system is concurrently experiencing stagnant exercise and accelerating inflation. The phenomenon was first acknowledged within the Nineteen Seventies when an oil shock prompted an prolonged interval of upper costs however sharply falling GDP development.

“A worrying signal is the passthrough of inflation from enter costs to output costs. The enter value inflation has been excessive for a lot of months by now, pushed by the rising commodity costs,” Zhang wrote. “However the leap of [the] output value index in Oct is alarming.”

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He mentioned that indicated inflationary strain is being handed from upstream to downstream corporations. Upstream refers to enter supplies wanted to supply items, whereas downstream operations are these nearer to the shoppers, the place merchandise get made and distributed.

“We may clearly see the … industrial stagflation in China due to the strengthening output index, on the identical time seeing a powerful improve within the value index. So, the commercial sector is clearly in a really troublesome scenario,” Raymond Yeung, chief economist of higher China at ANZ, instructed CNBC’s “Squawk Field Asia” on Monday.

Manufacturing unit output was held again by reduced power supply, materials shortages and excessive enter prices, in response to respondents of the manufacturing PMI survey, Capital Economics mentioned in a observe on Monday. China is presently going through a extreme energy disaster, because it grapples with a coal scarcity.

“This resulted in corporations having to attract down additional on their inventories and longer supply instances. Extra notably, these shortages and the rising costs of uncooked supplies are feeding via to larger output costs,” mentioned Sheana Yue, assistant economist at Capital Economics.

— CNBC’s Eustance Huang and Yen Nee Lee contributed to this report.

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