00:00Factory prices in China have grown at their fastest pace since June 2022, as high oil prices raise the cost
00:07of manufacturing.
00:08The producer price index went up 5.7% year-on-year in October, accelerating for the third month in
00:15a row.
00:15But prices for shoppers eased. Consume inflation slowed to 0.7% in the month of October.
00:21That was down compared to the rate of inflation the previous month.
00:25September saw year-on-year inflation rise by 0.9%.
00:30Now, gasoline costs were responsible for the bulk of that increase, counterbalancing a sharp decline in the price of food.
00:38Let's explore this in a bit more detail.
00:40Mark Oswald is a chief economist and global strategist at ADM ISI.
00:46So, Mark, producer price inflation rise into its fastest pace in four and a half years.
00:50But consumer inflation subdued. Walk us through that divergence. What explains it?
00:56Well, in terms of the producer price index, when one considers the fact that coal, oil and gas extraction and
01:06fuel processing, i.e. refining,
01:10contributed six percentage points to that 5.7% increase in PPI,
01:18means that really outside of the energy price problems that everyone in the world is facing at the moment,
01:25because of the disruption to supplies from the Middle East, there isn't really much inflation in China at all.
01:35And as for the consumer price index, it was slightly bigger than expected.
01:40I think the disappointment with that was that services, which some people had anticipated,
01:48might actually have a slight uptick due to the National Day holiday week,
01:53because that typically is what typically happens around holidays,
01:57were basically one of the drags along with food and leveling out against the gasoline prices.
02:07So, there is still deflation in China, despite what one thinks, despite the headline reading for producer prices.
02:17Right then. Property prices.
02:19For a lot of Chinese households, around half of their net worth is tied up in real estate in one
02:24year or another.
02:24To what extent is that drag that we're seeing in the real estate market affecting household spending?
02:31It's affecting it in a big way.
02:33I mean, you know, on balance, you know, the average Chinese saver has about 70% of their savings allocated
02:44to the residential property sector.
02:47So, this constant drop in house prices has been a major drag.
02:52And along with knock-on effects from tariffs, particularly for things like consumer electronics, furniture,
03:03those sort of things which have been hit quite hard and have hit wages quite hard as well,
03:09it is, you know, it's all serving to dampen consumer spending.
03:14And at the moment, there doesn't really seem to be a huge amount of effort being made to try and
03:21turn the property sector around,
03:23in part because of demographics.
03:27We need Mark Oswalt. Thank you very much for your input.
