China’s consumer prices return to growth as deflationary pressures persist
News Summary
China's Consumer Price Index (CPI) rose by 0.2% year-on-year in October, according to the National Bureau of Statistics, beating market expectations after a 0.3% drop in September. Despite this return to growth, the near-zero figure indicates persistent deflationary pressures amidst weak domestic demand and heightened trade uncertainties. Concurrently, factory-gate prices (PPI) fell for the 37th consecutive month. Dong Lijuan, a senior statistician at the bureau, attributed the October rise to policies aimed at boosting domestic consumption, alongside the National Day and Mid-Autumn Festival holidays. However, Zhang Zhiwei, chief economist at Pinpoint Asset Management, cautioned that while the CPI growth was a "surprise to the market," it is "too early to conclude the deflation is over."
Background
In 2025, China, as the world's second-largest economy, is striving to meet its annual growth targets despite facing increasing headwinds in the latter half of the year. The Chinese government, including Premier Li Qiang, has been actively promoting policies to stimulate domestic consumption, aiming to unleash spending potential and accelerate the development of new growth drivers like service industries. These measures are designed to counteract challenges arising from external uncertainties and insufficient domestic demand. The current global economic landscape is complex, with trade relations remaining tense following US President Trump's re-election, adding to trade uncertainties for China's economic growth. Against this backdrop, price trends, particularly inflation and deflation metrics, serve as crucial indicators for assessing the health of the Chinese economy and the effectiveness of its policies.
In-Depth AI Insights
Does China's marginal CPI growth signal a bottoming out of deflation and the start of an economic recovery? Answer: - It is premature to conclude a deflationary bottom or full economic recovery based solely on a single month's marginal 0.2% CPI increase. - The key concern remains the Producer Price Index (PPI), which has fallen for 37 consecutive months, indicating ongoing easing of upstream cost pressures, potential damage to corporate profitability, and a lack of sustained upward momentum for consumer prices. - Given persistent weak domestic demand and trade uncertainties, the observed CPI rise is more likely a short-term effect of policy stimuli and holiday spending rather than a structural improvement. For instance, the boost from National Day and Mid-Autumn Festival holidays is temporary. - Investors should be wary of a "false dawn" and look for sustained positive CPI growth over several months, accompanied by an improvement in PPI, to confirm a genuine easing of deflationary pressures. How will the Chinese government's economic stimulus strategy evolve in the face of persistent deflationary pressures and external uncertainties? Answer: - The Chinese government is expected to continue adopting more proactive and targeted fiscal and monetary policies to stabilize growth and boost confidence. - Fiscal policy will likely focus on expanding infrastructure investment, tax cuts, fee reductions, and direct subsidies to specific consumption sectors to stimulate demand. - Monetary policy is expected to remain accommodative, potentially through interest rate cuts or reserve requirement ratio reductions to lower financing costs, though risks of asset bubbles from excessive liquidity must be managed. - The government may further relax restrictions, such as those on real estate purchases, to reactivate the property market and its related supply chains, balancing this with financial risk control. - Amid escalating trade uncertainties, promoting the "dual circulation" strategy, particularly strengthening the domestic circulation, will become more urgent, enhancing the resilience of domestic supply chains through technological innovation and industrial upgrading. How will Donald Trump's re-election as US President impact China's "trade uncertainties" and, in turn, its inflation/deflation outlook? Answer: - Trump's re-election implies a likely escalation, and potentially expansion into new areas, of trade friction with China, further intensifying China's "trade uncertainties." - Increased trade barriers and tariffs will hinder exports, impacting industrial production and employment, which could keep PPI under pressure and potentially transmit to CPI. - Weak external demand will suppress domestic companies' investment and expansion intentions, leading to overcapacity and exacerbating deflationary risks. - To counteract external risks, the Chinese government may be compelled to intensify domestic stimulus efforts, which could partially offset deflationary pressures in the short term, but long-term effectiveness depends on the depth of structural reforms. - Under the trend of supply chain "de-risking," China's challenges will accelerate its push for localization and technological self-reliance. While this might lead to price increases for some imported goods, overall, external pressure remains one of the primary drivers of deflation.