China's headline producer price index fell 2.6 percent on the year in October after a decline of 2.5 percent in September. Headline PPI inflation has now been in negative territory for more than a year. The index was unchanged on the month after advancing 0.4 percent previously.

Other data also released today also showed continued weakness in consumer prices. Today's inflation data provide further evidence, after last week's PMI survey data, that momentum in the Chinese economy's recovery has stalled again despite recent steps to loosen policy and improve liquidity conditions. This may strengthen the case for further policy adjustments in coming weeks.

The fall in headline PPI was close to the consensus forecast for a decline of 2.8 percent. The China RPI and RPI-P fell from minus 43 to minus 64 and minus 100 respectively, indicating that recent Chinese data in sum are now coming in well below consensus forecasts.

Producer prices have been in annual contraction the last 12 reports. October's consensus is 2.8 percent contraction on the year versus as-expected 2.5 percent contraction in September.

The Producer Price Index (PPI) measures the change in the price of goods purchased and sold by producers. The industrial producer price index reflects the trend and level of prices change when the products are sold for the first time. The industrial purchaser price index reflects the trend and level of prices change for the products purchased by the industrial enterprises as intermediate inputs.

It is a leading indicator of consumer inflation - when producers pay and charge more for goods the higher costs are usually passed on to the consumer.

The PPI measures the industrial products price changes for the domestic market. Unlike most other countries, China only produces a comparison with the same month in the previous year but not with the previous month. The PPI covers all manufacturing activities. The prices include excise taxes but exclude VAT. The industry breakdown for the PPI follows China's Industrial Classification of the National Economy. The data include a 38 industry breakdown and are not adjusted for seasonality. They are available by the 20th of the month following the reference month and are published in the daily NBS paper"China Information".

The statistical survey of industrial producer prices covers prices for over 11,000 products from 1702 subclasses, 191 groups; and the statistical surveys of industrial purchaser prices cover prices for over 6,000 industrial products from over 900 subclasses. Industrial producer prices are collected from combined surveys of key businesses and typical businesses. Starting from 2011, the key businesses are those with their turnover from primary activities over 20 million yuan, and the typical businesses are those with less than 20 million yuan. The surveys cover about 60,000 industrial enterprises in over 400 cities across the country.