China's September consumer price index (CPI) and producer price index (PPI) continued to decline. Despite the government's aggressive intervention, deflationary pressure has not eased, but the statistics authorities said price declines are moderating and the economy is recovering, albeit slowly. The market is watching the third-quarter economic indicators, scheduled to be released on the 20th.
According to China's National Bureau of Statistics on the 15th, the September CPI fell 0.3% from a year earlier, a larger drop than the market forecast compiled by Bloomberg (down 0.2%). The PPI for the same month fell 2.3% year over year as the market expected, declining for the 36th consecutive month.
Authorities interpreted that China's economy is entering a phase of moderate recovery. Chief statistician Dong Lijuan said, "The main reason CPI continued to fall was the base effect," adding, "Core CPI, which excludes food and energy prices, has risen for five consecutive months and, for the first time in 19 months, recorded a 1% increase. The consumer market is showing a stable trend." On the PPI, Dong said, "The effects of macro policies are gradually appearing, showing positive changes."
On this, Bloomberg said, "China's deflation eased somewhat in September, but it is still in the longest period of falling prices since market reforms in the late 1970s," adding, "The GDP deflator, a comprehensive indicator of a country's prices, has been falling for the longest period since its introduction in 1992."
China has been mired in prolonged deflation since the COVID-19 pandemic. On top of that, the real estate market slump has continued for more than five years, preventing a recovery in consumer sentiment. In response, the Chinese government lowered this year's March consumer price inflation target to around 2%. It was the first cut in 20 years. However, for most of this year, China's consumer prices have been flat or declining.
In addition, with oversupply deepening in sectors such as automobiles due to overproduction, corporations are continuing to cut prices to survive. As a result, profitability in the industrial institutional sector is deteriorating. According to Bloomberg, the share of loss-making corporations last year hit the highest level since 2001. The Chinese government has intervened several times to ease excessive price competition among manufacturers, but deflationary pressure remains.
Bloomberg said, "The Chinese government is scheduled to release major third-quarter economic indicators on the 20th, and most experts expect growth to slow compared with the first half," adding, "However, thanks to solid growth in the first and second quarters, the annual growth target of 5% appears achievable. For this reason, the prevailing view is that the Fourth Plenum is unlikely to discuss additional stimulus measures."