An undated editorial photo of Chinese yuan cash bills and the flag of the People’s Republic of China.
Javier Ghersi | Moment | Getty Images
China’s consumer prices remained unchanged in September, while there was a slower annual decline in factory gate prices for the third consecutive month. This indicates an uneven post-Covid recovery in the world’s second-largest economy, which may require further policy support.
The National Bureau of Statistics reported that the Consumer Price Index (CPI) in September was flat compared to the previous year, falling short of the Reuters poll’s median estimate of a 0.2% increase. In August, CPI had increased by 0.1%, marking the first year-on-year increase in three months.
However, the bureau stated separately that core inflation, excluding energy and food prices, increased by 0.8% in September compared to the previous year, similar to the rate recorded in August.
China’s Producer Price Index (PPI) fell by 2.5% compared to the previous year, weaker than the expected decline of 2.4% after a 3% drop in August. Nevertheless, the drop in factory prices was the smallest in seven months.
Tepid prices highlight the challenging economic recovery in China, described by the country’s top leaders as “tortuous.” Unlike other major economies still grappling with high inflation, China has experienced an outlier situation.
“The recovery of domestic demand is not strong, without a significant boost from fiscal support.”
Zhiwei Zhang
Pinpoint Asset Management
Friday’s inflation data may raise concerns about the possibility of deflation in China. Despite the narrowing in producer prices in September, it marks the 12th consecutive monthly drop on an annualized basis.
“CPI inflation at zero indicates the real risk of deflationary pressure in China’s economy,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
Zhang added, “The recovery of domestic demand is not strong, without a significant boost from fiscal support. The slowdown in the property sector has had a negative impact on consumer confidence and household demand.”
Despite indications of tepid growth from various economic data, Beijing has been selective in its policy support. The ongoing debt crisis faced by two of China’s largest real estate developers has further weakened consumer confidence.
Weaker food prices played a significant role in the flat consumer prices seen in September. China’s National Bureau of Statistics attributed this to high food prices during the same period last year.
Official data revealed a collective decrease of 3.2% in China’s food prices in September compared to the previous year.
Notably, the price of pork, a key staple in Chinese diets, dropped by 22% year-on-year, while the prices of livestock, meat, and fresh vegetables decreased by 12.8% and 6.4%, respectively.
Capital Economics noted that services inflation reached a 19-month high of 1.3%.
“This suggests that China’s low inflation rate is not primarily due to domestic weaknesses but rather excess industry capacity resulting from the reversal of the pandemic-induced boom in global goods demand,” said Zichun Huang, an economist at Capital Economics.
Huang also highlighted that core goods inflation remained subdued at 0.3% year-on-year.
In terms of monthly changes, consumer prices in September rose by 0.2%, with food prices increasing by 0.3%. However, this represents a 0.2 percentage point decrease compared to the previous month’s print.
“The market supply is relatively sufficient before the Mid-Autumn Festival and National Day this year, and the food price increase is slightly lower than the historical average for the same period,” said Dong Lijuan, the chief statistician of the Urban Department of the National Bureau of Statistics, in a statement.
China’s Mid-Autumn Festival and National Day occurred in early October this year.
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