FROM ZERO HEDGE:
China’s factory-gate prices grew at the fastest pace in almost 26 years in September, adding to global inflation risks and putting pressure on local businesses to start passing on higher costs to consumers.
The producer price index climbed 10.7% from a year earlier, the highest since November 1995, data from the National Bureau of Statistics showed Thursday, far higher than the 9.5% gain in August and hotter than the 10.5% expected.
The situation is about to get much, much more serious. If the historical correlation between Coal prices and PPI holds, were may be soon looking at a tripling of China’s PPI, which from 10.7% Y/Y in September, is about to soar to 30% or more.
Needless to say, if Chinese PPI does hit 30%+, even if CPI somehow stay in the single digits, the results would be catastrophic: profit margins would collapse, the plunge in already thin cash flows would lead to even more defaults and supply chain bottlenecks, even as the scramble to obtain commodities “at any price” keeps pushing costs - and PPI - even higher.
Meanwhile, if producers do try to pass on some of the costs and CPI spikes (the gap between CPI and PPI was already at record wide before the recent surge in coal prices) as it did in the early 90s...
... then Beijing will have social unrest on its hands.
For a couple of years, maybe. I think there is enough incentive for companies to get out of China and set up factories elsewhere.