The Consumer Price Index (CPI), released by China’s National Bureau of Statistics (NBS), recorded a year-on-year increase of 0.2% last month.
The index, regarded as the primary gauge of inflation in China, hadn’t seen an annual rise since June.
In six of the nine months this year, China’s CPI was negative, recovering only in January (up 0.5%) and June (up 0.1%). The sharpest decline was in February (down 0.7%).
Last month’s rise, the second-highest of the year, surpassed analysts’ expectations, who had predicted the indicator would remain unchanged (0%) compared to October 2024.
The NBS also released the Producer Price Index (PPI), which measures industrial prices. Despite a persistent negative trend for two years, the PPI registered the smallest drop since August 2024, decreasing 2.1%.
The world’s second-largest economy has been grappling with deflationary pressures for more than two years, with weak domestic demand and industrial overcapacity affecting prices. Simultaneously, international trade uncertainties hinder suppliers’ ability to move products.
Deflation is characterized by a decrease in prices over time, in contrast to inflation. This phenomenon indicates weakness in domestic consumption and investment and poses particular risks, as a decline in asset prices, typically leveraged with credit, creates an imbalance between loan values and bank guarantees.
Another consequence is the delay in consumption and investment decisions due to expectations of future price drops, potentially creating a difficult-to-reverse downward spiral of prices and demand, impacting the entire economy.
Prices began to fall in 2022, with a decline in the most critical asset in China: residential real estate. The drop in property prices led to a loss of household confidence, resulting in a contraction in consumption. This, combined with the country’s overproduction capacity, sparked a price war among manufacturers and retailers, fueling a deflationary spiral.
Beijing has since implemented measures to end the price war. The Chinese Communist Party further pledged in July to combat “irrational competition” in various sectors.
