China’s deflationary pressure worsened in September as consumer prices remained weak and factory gate prices continued to decline. According to data released by the National Bureau of Statistics on Sunday, the consumer price index (CPI) rose by only 0.4% year-over-year, with the increase largely attributed to a surge in fresh vegetable prices. The core CPI, which excludes volatile food and energy prices, climbed a mere 0.1%, marking its lowest rise since February 2021.
Producer prices experienced their 24th consecutive month of decline, falling 2.8% in September, surpassing economists’ forecasts of a 2.6% drop. This persistent deflation in producer prices highlights ongoing weakness in domestic demand, despite the Chinese government’s recent efforts to stimulate the economy.
Food prices overall rose by 3.3% in September, driven by a 22.9% surge in fresh vegetable prices following a 21.8% increase in August. The inflation boost of 0.48 percentage points was largely attributed to adverse weather and increased seasonal demand ahead of China’s weeklong holiday.
The prolonged deflation marks China’s longest period of falling prices since the 1990s, with a broad measure of prices across the economy declining for five straight quarters through June. This trend likely continued through September, prompting policymakers to ramp up economic support.
In late September, Beijing cut interest rates and implemented measures to support the slumping property and stock markets. On Saturday, the Finance Ministry announced additional aid for the struggling property sector and heavily indebted local governments.
“The overall inflation is still significantly lower than the policy target, and demand remains weak,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. Pang expects consumer and producer confidence to gradually recover with the implementation of existing and new stimulus policies.
Deflationary pressures have also led to price wars in key industries, including electric vehicles and solar energy. The prices of transportation facilities, including cars, fell by 5.3%, while automobile manufacturers saw their sale prices drop by 2.3%.
Economists warn that falling prices could further damage China’s economy by reducing spending and investment, potentially leading to weaker economic growth and higher unemployment rates. As Beijing continues its efforts to boost demand, the country faces an ongoing challenge to break free from its deflationary cycle.
