China’s factory-gate deflation eased in October
Producer price deflation in China eased in October and consumer prices returned to positive territory as the government stepped up efforts to curb excess capacity and fierce competition between firms.
Despite the improvement in headline figures, analysts warn that deflationary pressures on the world’s second-largest economy are far from over and the government may be forced to take additional policy measures to stimulate demand.
“Demand remains weak, but the recovery in CPI shows that supply-side policies are effective and the supply-demand balance is improving in many sectors,” Xu Tianchen, senior economist at the Economist Intelligence Unit, said on Sunday. he said.
“The future trend of inflation will depend on how much demand-side policies are strengthened.”
National Bureau of Statistics (NBS) data showed that the producer price index fell 2.1 percent in October compared to the previous year; In a survey conducted by Reuters among economists, a decrease of 2.2 percent was expected. The index has been negative since October 2022 and fell 2.3 percent in September.
NBS statistician Dong Lijuan said capacity management in key sectors has narrowed annual producer price declines. Price declines in the coal mining and washing sectors narrowed by 1.2 percentage points, while price declines in photovoltaic equipment, batteries and automobile production narrowed by 1.4, 1.3 and 0.7 percentage points, respectively.
Consumer prices rose 0.2 percent from a year earlier, reversing a two-month decline and beating forecasts of no change.
Compared to the previous month, CPI increased by 0.2 percent in October, following a 0.1 percent increase in September, which is similar to the forecast for no change.
Core inflation, which excludes volatile food and fuel prices, rose 1.2 percent year-on-year in October; After a one percent increase in September, it accelerated and reached its highest level in 20 months.
Food prices fell 2.9 percent annually, after falling 4.4 percent in September.
October price figures show that government efforts to rein in excessive competition have helped stabilize prices, but weak domestic demand and geopolitical tensions continue to cloud the business outlook.
“It is too early to conclude that deflation is over,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
“We need to wait a few more months of data to decide whether the deflation dynamic has fundamentally changed.”
China’s economic growth fell to its weakest level in a year in the third quarter, and youth unemployment remained high despite a drop in September.
Policymakers have shied away from aggressive stimulus this year; The central bank kept interest rates steady for five months, partly because exports remained resilient following a trade truce with the United States.
China has recently announced some fiscal and quasi-fiscal policy support measures, but analysts are divided on whether the central bank will implement further easing measures such as interest rate cuts by the end of the year.
China’s economy is on track to meet the government’s growth target of around five percent this year, but manufacturer deflation, weak factory activity and an expected contraction in exports in October suggest growth momentum is waning.
