China's PPI rose to 5.0% while its CPI stayed at 0.9%. Does the factory-gate gap matter for the Australian dollar?

China's National Bureau of Statistics reported on 14 October that the producer price index rose 5.0% on the year in September, 1.2 points faster than in August. The consumer price index rose only 0.9% (PPI report, CPI report). Gasoline prices rose 16.6% on the year, contributing about 0.47 point to the consumer figure, while food prices fell 1.7%.

Costs at the factory gate are rising much faster than consumer prices. For the Australian dollar, that gap matters because factory costs and demand for raw materials feed into Chinese production, and China is Australia's largest trading partner.

We would like to hear how you use China's price data:

• Do you use the PPI as a lead for AUD, or do you focus on the consumer index?
• When costs rise faster than consumer prices, do you expect margins to be squeezed or passed on?
• Which other China release, such as trade or industrial output, do you check alongside the price data?
• Have you traded AUD/USD around a China data release, and how did it go?

China's August inflation report gives the earlier trend.

The gap between the two indexes matters for margins. When factory-gate costs rise faster than consumer prices, firms either absorb the difference or pass it on slowly, and each path has different effects on earnings and on commodity demand. Ask which path you expect for Chinese manufacturers over the coming quarter.

Please share your own approach and reasoning, not calls for others to copy. Posts that promise a direction or sell signals will be removed.