China's September PPI Rises 5.0%, Highest in Nearly Four Years; Widening Scissors Gap Squeezes Downstream SMEs

On October 14, China's National Bureau of Statistics (NBS) reported that the Producer Price Index (PPI) rose 5.0% year-on-year in September, marking the highest increase since July 2022. The PPI had experienced 41 consecutive months of negative growth from October 2022 to February 2026 before turning positive in March 2026, with gains continuing to accelerate thereafter.

Dong Lijuan, Chief Statistician at the NBS Urban Department, attributed the rise to higher international crude oil and non-ferrous metal prices, changes in supply-demand dynamics in energy and raw material sectors, and increased demand driven by developments in artificial intelligence and computing-power coordination. By sector, coal mining and washing prices rose 35.3% YoY, petroleum and natural gas extraction rose 24.5%, and non-ferrous metal smelting and rolling processing both rose 21.4%.

The surge in PPI has further widened the 'scissors gap' between PPI and the Consumer Price Index (CPI). From February to June 2026, the difference in their YoY growth rates expanded from -2.2 percentage points to 3.1 percentage points, holding at 3.0 points in July and August, before widening to 4.1 percentage points in September. Zhang Lin, Executive Vice President of Far East Credit Rating Institute, noted this reflects a typical structural inflation pattern where upstream is strong and downstream is weak, characterized by cost-push factors but weak pass-through to end consumers.

A prolonged divergence between CPI and PPI essentially represents a redistribution of profits along the industrial chain. When the positive scissors gap is large, upstream resource and material sectors benefit due to strong pricing power and operating leverage, concentrating profits there. Conversely, downstream consumer and brand manufacturing sectors face squeezed gross margins as they struggle to pass on costs, leading to revenue growth without profit growth. Zhang Liqun, a researcher at the Development Research Center of the State Council, warned that if the gap continues to widen, it will exacerbate difficulties for small and medium-sized enterprises (SMEs) in mid-to-downstream industries, particularly traditional manufacturers already facing insufficient orders.