The cost of Chinese goods has risen to an all-time high, raising concerns about stagflation in the world's second-largest economy, at a time when most Chinese companies are already grappling with a deepening debt crisis, according to CNN.
The producer price index, which measures the cost of goods sold for businesses, rose 10.7 percent in September from a year ago, according to government data released on Thursday. This is the fastest increase in China since 1996, when the government began issuing such data.
The rise could be attributed to "higher coal prices and products from energy-intensive sectors," Dong Liguan, chief statistician with China's National Bureau of Statistics, said in a statement.
Coal prices have risen to record levels as the country struggles to keep up with demand from power plants.
Data shows that rising raw material costs are severely reducing profits for Chinese companies, a problem that may force them to cut production or even lay off workers. Some factories have already reduced the number of shifts due to energy savings.
The American channel stressed that high prices and low production could lead to more problems for global supply chains, which are already under enormous pressure. Some analysts stated that global inflation may continue to climb with "the supply shock that China is going through through global supply chains".
Inflation in the United States and Europe has reached its highest levels in 13 years. Germany, which has close trade ties with China, has seen inflation rise to a 29-year high.
Ongoing energy crisis
China is already going through an energy crisis affecting factory production and leading to blackouts in some areas. The electricity outages recorded in the recent period have caused the complete or partial closure of factories, affecting production and global supply chains.
This crisis is due to a series of factors, including an increase in global demand for energy resources with the revitalization of the economic cycle, record prices for coal at the local level, state controls on electricity prices and emission reduction goals.
And forced more than ten provinces and regions in the past months, to impose restrictions on energy consumption.
“Stagflation risks are rising. The ambitious carbon reduction target is putting continued pressure on commodity prices,” Qu Zhang, chief economist at Pinpoint Asset Management, wrote in a note Thursday.
Consumer inflation remains low. The CPI rose only 0.7% in September from a year earlier. But there are some signs that producers are starting to pass on costs.
At least 13 publicly traded companies, including a major soy sauce maker, have raised their prices this year due to rising costs, according to a report in the state-owned China Securities Journal.
Thursday's data came days before China is scheduled to release third-quarter GDP figures, which are expected to show a slowdown in growth. And many economists revised their growth forecasts for China as the country's energy crisis worsened.
This demand "means to me that we are not about to see a lull in prices. On the contrary, things seem to be heading for an extra frenzy," said Bjarne Schieldrop, an analyst at SEB.
He added that the companies may deliberate "to agree everything possible in order to win a bid for a shipment of coal" or liquefied natural gas.
The current crisis prompted bank "Nomura" and "Goldman Sachs" this week to reduce their forecasts for growth in China this year, with the possibility of causing additional disruptions in supply and production chains.
The crisis affected factories that produce materials for global giants such as "Apple" and "Tesla", and were asked to suspend production. A note issued by Capital Economics this week warned that "the power shortage is unlikely to abate soon."
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