China economy shows signs of stagflation, price inflation: Economists

Employees 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 knowledge 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 under the 50 degree which separates growth from contraction.

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

In distinction, the output worth index has risen to the best degree because it was printed in 2016, Zhang stated.

“These indicators verify that China’s financial system is probably going already going by stagflation,” he stated in a word on Sunday.

Stagflation is when the financial system is concurrently experiencing stagnant exercise and accelerating inflation. The phenomenon was first acknowledged within the 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 worth inflation has been excessive for a lot of months by now, pushed by the rising commodity costs,” Zhang wrote. “However the bounce of [the] output worth index in Oct is alarming.”

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He stated that indicated inflationary stress 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 might clearly see the … industrial stagflation in China due to the strengthening output index, on the identical time seeing a powerful improve within the worth index. So, the economic sector is clearly in a really tough state of affairs,” Raymond Yeung, chief economist of larger China at ANZ, informed CNBC’s “Squawk Field Asia” on Monday.

Manufacturing unit output was held again by reduced power supply, materials shortages and excessive enter prices, in keeping with respondents of the manufacturing PMI survey, Capital Economics stated in a word on Monday. China is at present 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 by to increased output costs,” stated Sheana Yue, assistant economist at Capital Economics.

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

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