The main drivers of the monthly pickup in industrial pricing were prices of coke and refined petroleum products, along with prices of electricity and natural gas. When assessed by the main industrial groups, prices of intermediate goods added 4.4% in July. Meanwhile, prices of non-durable consumer goods declined by 2.9% in annual terms. Industrial producer prices, excluding energy, were up by 1.4% YoY. The breakdown clearly illustrates the impact of the global negative supply shock, when the input costs surge, while the ability to pass those through to end prices is limited.
The decisive limiting factor is the intensifying global competition, partially fostered by Chinese overproduction and the constrained efforts to propel the consumption appetite of Chinese households in times of considerable economic uncertainty. And yes, we have observed during the Covid shock that the price dynamics in non-durable consumer goods may kick in with a significant lag. However, we take the side that things are a bit different this time: i) the global consumer has to reach deeper into his pockets this time, and ii) China’s attitude shifted from striving to become a demand-driven economy to the aim of overproducing everyone else.