Under the Hood of China's CPI Is a Burgeoning Services Sector

  • Services prices continue to outstrip consumer product costs
  • Meanwhile, PPI stuck in deflation on lower commodity prices

Here’s one key takeaway from China’s inflation numbers on Wednesday that showed producer prices remained negative for a record 43rd consecutive month in September and consumer price gains slowed: the services sector continues to hold up.

  • Services prices rose 2.1 percent in September from a year earlier.
  • Consumer goods rose by 1.4 percent on year in September, slowing from 1.8 percent the previous month. That compares with a 1.6 percent gain for overall CPI in September, also slower than the 2 percent rate in August.
  • Services inflation has outstripped consumer goods since October 2013, reflecting strength in areas including domestic tourism, box office receipts and restaurant spending.

"The services sector is actually the main reason behind the consumer price inflation," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. "The services sector in China is booming but the manufacturing sector is in recession. You’re seeing a two speed economy."

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