China’s Deflationary Trend Continues in September
Deflationary pressures persisted in China during September, with both consumer and producer prices falling, according to reports from the National Bureau of Statistics. The data supports the case for additional policy measures as a prolonged property market slump and ongoing trade tensions continue to weigh on economic confidence, sources indicate.
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Price Indicators Show Mixed Improvement
The producer price index (PPI) reportedly fell 2.3% from a year earlier in September, narrowing from a 2.9% decline in August. According to the analysis, this represents the smallest decline in seven months, helped by government efforts to curb price competition. Meanwhile, the consumer price index (CPI) dipped 0.3% last month from a year earlier, showing a slight improvement from August’s 0.4% fall but remaining in negative territory.
Economists Express Concerns About Sustained Deflation
“We continue to expect both CPI and PPI to stay in deflation this year and next,” said Zichun Huang, China economist at Capital Economics, according to the report. Huang noted that while policymakers are taking deflation more seriously, supply-side solutions may not succeed without substantial demand-side support, analysts suggest.
Food Prices Lead Consumer Deflation
Food prices fell 4.4% year-on-year in September, with pork prices tumbling 17% despite recent government calls for leading hog producers to cut output. The report states that food prices had fallen 4.3% in August, indicating continued pressure in this critical component of the consumer basket.
Policy Dilemma for Chinese Authorities
Policymakers have so far refrained from launching major stimulus, reportedly wary of creating a stock market bubble similar to the 2015 crash. Authorities announced in May a raft of stimulus measures, including interest rate cuts and liquidity injections, and the central bank vowed in late September to step up policy support, according to reports.
Holiday Spending Fails to Boost Economy
The combination of the Mid-Autumn festival and the National Day holiday failed to reverse a downtrend in holidaymakers’ average spending, the report states. Cautious consumers remained wary of discretionary expenses amid a weak job market and continued property sector downturn, sources indicate.
Potential Policy Easing on Horizon
Lynn Song, chief Greater China economist at ING, said slowing momentum in the third quarter and another month of deflation suggest monetary policy easing remains possible. “November, consequently, remains an interesting window to watch for potential easing,” leaving the central bank with ammunition to support markets if trade talks do not go well, Song noted according to the analysis.
Industrial Sector Challenges
Factory-gate prices have fallen since October 2022, but declines have lessened in recent months due to government calls for key sectors to scale back competition. A prolonged price war in the auto sector, for instance, has reportedly taken a toll on major automakers’ profitability, according to industry analysis.
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This coverage is based on reporting from Reuters journalists Zhang Yukun, Qiaoyi Li and Ryan Woo, with editing by Jacqueline Wong. Additional technology sector developments can be found in related coverage including green ethylene production advances, AMD’s latest cloud processors, Apple’s M5 chip developments, and Microsoft’s Windows Server updates.
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