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World NewsChina economy shows signs of stagflation, price inflation: Economists

China economy shows signs of stagflation, price inflation: Economists

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

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

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

Zhang Zhiwei, chief economist at Pinpoint Asset Management, stated 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 yr.

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

“These signals confirm that China’s economy is likely already going through stagflation,” he stated in a notice on Sunday.

Stagflation is when the economy 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 larger costs however sharply falling GDP progress.

“A worrying sign is the passthrough of inflation from input prices to output prices. The input price inflation has been high for many months by now, driven by the rising commodity prices,” Zhang wrote. “But the jump of [the] output price index in Oct is alarming.”

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

“We could clearly see the … industrial stagflation in China because of the strengthening output index, at the same time seeing a strong increase in the price index. So, the industrial sector is clearly in a very difficult situation,” Raymond Yeung, chief economist of better China at ANZ, informed CNBC’s “Squawk Box Asia” on Monday.

Factory output was held again by lowered energy provide, materials shortages and excessive enter prices, in line with respondents of the manufacturing PMI survey, Capital Economics stated in a notice on Monday. China is at the moment going through a extreme energy disaster, because it grapples with a coal scarcity.

“This resulted in firms having to draw down further on their inventories and longer delivery times. More notably, these shortages and the rising prices of raw materials are feeding through to higher output prices,” stated Sheana Yue, assistant economist at Capital Economics.

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

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