According to economists, there is evidence of stagflation occurring in China. China’s prices are continuing to rise while China’s latest manufacturing data shows a slowing trend.

According to an official survey, China’s manufacturing activity declined more than anticipated in October. It also contracted for the second month. In October, the official Manufacturing Purchasing Managers’ Index came in at 49.2, below 50 which is what separates expansion and contraction.

Zhang Zhiwei is the chief economist of Pinpoint Asset Management. He said that the production index had fallen to its lowest point since 2005. This excludes the 2008 financial crisis, the Covid-19 epidemic in February, and other factors.

Zhang noted that, in contrast to this, Zhang claimed that the output prices index rose to its highest level ever since 2016.

In a Sunday note, he stated that these signals “confirm that China’s economy is already experiencing stagflation.”

Stagflation is when the economy is simultaneously experiencing stagnant activity and accelerating inflation. This phenomenon was first noticed in 1970s after an oil shock caused prolonged periods of high prices and sharply declining GDP growth.

It is alarming to see the inflation passing from input prices to output prices. Zhang stated that the rise in commodity prices has driven high input price inflation for several months now. But the rise of [the]The output price index for Oct is alarming.

According to him, this indicated that inflationary pressures are being transferred from upstream firms to downstream. Upstream is the production of goods using input materials, while downstream refers to those closest to consumers, which are where products are made and distributed.

“We could clearly see the … industrial stagflation in China because of the strengthening output index, at the same time seeing a strong increase in the price index. The industrial sector clearly is in a difficult position,” Raymond Yeung of ANZ’s greater China chief economist, said Monday on CNBC’s “Squawk Box Asia.”

Reductions in factory production were observed reduced power supplyCapital Economics stated in a Monday note that respondents to its manufacturing PMI survey said they were experiencing material shortages and high input cost. China currently faces a serious power crisis as it struggles with coal shortages.

This led to firms needing to reduce their inventory and longer delivery times. This is because of the increasing prices for raw materials and shortages. It has led to increased output prices,” stated Sheana Yue (assistant economist, Capital Economics).

— CNBC’s Eustance Huang and Yen Nee Lee contributed to this report.