China’s Consumer Prices Drops As Recovery Wobbles

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China’s consumer prices experienced a downward shift in October, reflecting a subdued state of domestic demand that hasn’t been observed since the onset of the pandemic. Additionally, factory-gate deflation further intensified, raising questions about the potential for a comprehensive economic recovery.


The latest data from the National Bureau of Statistics (NBS) revealed that the consumer price index (CPI) declined by 0.2% in October compared to the same period last year and slipped 0.1% from September. These figures fell below expectations, as a Reuters poll had projected a modest 0.1% year-on-year decrease and a flat month-on-month reading. The last time both indicators were in negative territory simultaneously was in November 2020 during the COVID-19 pandemic.


The headline CPI was primarily influenced by a notable drop in pork prices, which fell by 30.1%. This represented an acceleration from the 22% decline witnessed in September, largely due to an oversupply of pigs and diminished demand. Even core inflation, which excludes food and fuel prices, decelerated, standing at 0.6% in October, down from 0.8% in September. This highlights China’s persistent battle with deflationary pressures and the risk of failing to meet the government’s full-year inflation target, set at around 3%.


Although consumer prices entered deflation in July and briefly turned positive in August, they remained flat in September. Concurrently, factory deflation extended into its 13th consecutive month in October. When considering this data alongside other economic indicators, it becomes apparent that a substantial recovery in the world’s second-largest economy is still elusive.


Economists concur that Chinese policymakers are grappling with the challenge of addressing persistent disinflation in the face of weakened demand. To mitigate the risk of a downward drift in inflation expectations that could jeopardize business confidence and household spending, they recommend implementing an appropriate policy mix and more supportive measures.


On a month-on-month basis, CPI declined by 0.1%, compared to a 0.2% increase in September. The producer price index (PPI) registered a 2.6% year-on-year decrease, up from a 2.5% drop in September. This figure slightly exceeded the economists’ prediction of a 2.7% decline in October.

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