China's record-level deflation continues… September consumer prices down 0.3%↓

CPI and PPI downtrend continues

Longest decline since the 1970s

China's consumer price index (CPI) and producer price index (PPI) continue to decline. Despite active government intervention, deflation (a fall in prices amid an economic downturn) pressure has not been alleviated, but authorities said the price decline is easing and the economy is slowly recovering.

According to the National Bureau of Statistics of China on the 15th, September CPI fell 0.3% year on year. This marks two consecutive months of negative inflation following the previous month (0.4% decline), and the rate of decline was larger than the market consensus compiled by Reuters (0.2% decline).

Compared with the previous month, it rose by only 0.1%, below Reuters' forecast (0.2% increase). The CPI decline was led by the food and energy sectors.

Food prices plunged 4.4% year on year, with pork, vegetables, eggs and fruit falling 17.0%, 13.7%, 13.5% and 4.2% respectively. Energy prices fell 2.7% year on year.

September producer price index (PPI) fell 2.3% year on year, in line with Reuters' forecast (2.3% decline). China's PPI has been negative for 36 consecutive months since October 2022. However, the September drop narrowed compared with August (2.9% decline).

Authorities interpreted that the Chinese economy is entering a modest recovery phase. Chief statistician Dong Lijuan said, "The main reason CPI has remained in decline is the base effect," and explained, "Core CPI excluding food and energy has shown five consecutive months of increases and a stable trend." Regarding the PPI, she said, "The effects of macro policy are gradually appearing and showing positive changes."

Bloomberg said, "China's deflation eased somewhat in September, but it still continues the longest period of price declines since the market reforms in the late 1970s."

While the world faces inflation concerns due to the high-tariff policies of the Donald Trump administration in the United States, China is under deflationary pressure due to weak demand and excessive price competition in industries.

Additionally, the slump in the real estate market has continued for more than five years, adversely affecting consumer sentiment. The Chinese government lowered its consumer price growth target to around 2% in March this year, but for most of this year China's consumer prices have been flat or falling.

Mansu Choi reporter bebop@hankyung.com