China deflation eased in September but price declines linger
Overcapacity in some industries has led to a glut of production, forcing firms to cut prices to survive
[BEIJING] China’s deflation eased in September, leaving the country on track for the longest streak of economy-wide price declines since market reforms in the late 1970s.
Prices at the factory gate fell 2.3 per cent from a year earlier, marking the 36th straight month of declines, in line with forecasts. Producer deflation moderated for a second month.
Under pressure from falling food costs, consumer prices dropped 0.3 per cent, the National Bureau of Statistics (NBS) said on Wednesday (Oct 15), below the median estimate of minus 0.2 per cent in a Bloomberg survey of economists.
The core consumer price index, which excludes volatile items such as food and energy, rose to a 19-month high of 1 per cent.
Market reaction to the data was relatively muted, with the CSI 300 Index of onshore Chinese stocks up slightly. The Hang Seng China Enterprises Index rose as much as 1.3 per cent, after sliding for three consecutive sessions, as a US official suggested trade tensions would ease.
“An improvement in demand and supply has stabilised prices in some industries, such as coal mining and solar equipment,” Dong Lijuan, chief statistician at the NBS, said.
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The world’s second-biggest economy has been mired in deflation since the end of the Covid-19 pandemic, with the housing market crash compounding weak consumer demand. Overcapacity in some industries has led to a glut of production, forcing firms to cut prices to survive.
Deflationary pressures have persisted despite government attempts to slow or stop the crushing price wars and competition among manufacturers. China’s GDP deflator, the broadest measure of prices, has been in decline for over two years in the longest stretch since the quarterly data began in 1992.
Nine straight quarters of economy-wide price declines reflect a mismatch between supply and demand, weighing on the balance sheets of companies and pushing down the earnings of both households and the government. Citigroup estimates the GDP deflator stayed around minus 1.3 per cent in the third quarter.
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China’s government reduced its official target for consumer inflation to around 2 per cent for 2025, the lowest level in over two decades. Even so, price growth has been near zero or negative for much of this year.
China is set to announce third-quarter data for economic activity on Oct 20, with most analysts predicting a slowdown from the first half of the year.
A strong showing in the first two quarters likely means China will reach the official growth target of around 5 per cent, with fresh stimulus probably not on the agenda for a meeting of the ruling Communist Party later this month. BLOOMBERG
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