Based on headline producer price growth of 13.5% in October, it might not seem that commodities prices in China are collapsing. But prices are dropping just as fast as they had risen, driven primarily by supply-related factors, with recent price movements fueled by speculation. There is still little passthrough from rising production costs to consumer prices, given ongoing weakness in consumption and income growth. China’s longer-term price outlook is more likely to be disinflationary, or even deflationary, given a probable decline in investment activity, with demographic pressures also contributing.
