Under pressure from falling food costs, consumer prices dropped 0.3%, the National Bureau of Statistics said Wednesday, below the median estimate of minus 0.2% in a Bloomberg survey of economists. The core consumer price index, which excludes volatile items such as food and energy, rose to an 19-month high of 1%.
Morgan Stanley expects the comparison base for core CPI and producer prices to shift “from tailwind to headwind” in the fourth quarter, after they benefited from favourable statistical effects.
“An improvement in demand and supply has stabilised prices in some industries, such as coal mining and solar equipment,” Dong Lijuan, chief statistician at the NBS, said in a statement.
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Market reaction to the data was relatively muted, with the CSI 300 Index of onshore Chinese stocks little changed. The Hang Seng China Enterprises Index rose around 1%, after sliding for three consecutive sessions, as a US official suggested trade tensions would ease.
The world’s second-biggest economy has been mired in deflation since the end of the pandemic, with the housing market crash compounding weak consumer demand. Overcapacity in some industries has led to a glut of production, forcing firms to cut prices to survive.
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Deflationary pressures have persisted despite government attempts to slow or stop the crushing price wars and competition among manufacturers. China’s GDP deflator — the broadest measure of prices — has been in decline for over two years in the longest stretch since the quarterly data began in 1992.
Still, the latest reading for prices in September added to signs of easing deflation in some sectors as a result of the effort to curb what the government has called “disorderly competition.” What’s not yet clear is if the turnaround can be sustained.
The ferrous metals sector — including iron and steelmakers — saw prices jump 2.6% from the previous month, their biggest increase since late 2023. The coal mining and washing industry recorded a 2.5% gain.
Nine straight quarters of economy-wide price declines reflect a mismatch between supply and demand, weighing on the balance sheets of companies and pushing down the earnings of both households and the government. Citigroup Inc. estimates the GDP deflator stayed around minus 1.3% in the third quarter.
China’s government reduced its official target for consumer inflation to around 2% for 2025, the lowest level in over two decades. Even so, price growth has been near zero or negative for much of this year.
China is set to announce third-quarter data for economic activity on Oct 20, with most analysts predicting a slowdown from the first half of the year.
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A strong showing in the first two quarters likely means China will reach the official growth target of around 5%, with fresh stimulus probably not on the agenda for a meeting of the ruling Communist Party later this month.
“Considering the slowing momentum in the third quarter, another month of deflation suggests that monetary policy easing remains on the table,” Lynn Song, chief Greater China economist at ING Bank NV, said in a report.
But after the recent flare-up in tensions over trade between Beijing and Washington, the People’s Bank of China is likely to stay on hold ahead of an expected meeting between President Donald Trump and Chinese President Xi Jinping later this month.
“That would leave ammunition to support markets if talks do not go well,” ING’s Song said. “November, consequently, remains an interesting window to watch for potential easing.”
