China September Inflation Slows as Food Price Gains Moderate

China’s consumer inflation slowed in September, driven by a moderation in food price gains.

  • The consumer price index rose 1.7% last month from a year earlier, following a 2.4% gain in August, the National Bureau of Statistics said Thursday. The median forecast was for a 1.9% increase.
  • The producer price index registered a 2.1% decline, after a 2% drop in August.

Key Insights

  • Pork prices, a key element in the country’s CPI basket, rose 25.5% after gaining 52.6% the previous month. The moderation has some effect on lowering inflation for households, but base effects are also present — prices of the meat hit record levels during the peak of the African Swine Fever pandemic last year.
  • Core inflation, which removes the more volatile food and energy prices, remained steady at 0.5%. Sluggish core price gains may signal weak underlying activity in the economy.
  • “The deflation risk is still looming,” said Raymond Yeung, chief greater China economist at Australia and New Zealand Banking Group. “China is just regaining its growth momentum rather than overheating. The economy is still operating below the potential level.”
  • China’s economic recovery has stabilized recently thanks to robust export growth and improving domestic demand as coronavirus cases have largely been brought under control at home. The September activity data and third-quarter GDP to be released on Monday will provide some glimpse into how sustainable the rebound is.

What Bloomberg’s Economists Say…

“The demand side still has some distance to go to recover to pre-virus levels. For the People’s Bank of China, the data make the case for continued support. We think it will take a go-slow approach to easing, while keeping a close eye on how the recovery progresses.”

David Qu, Bloomberg Economics

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  • Due to lagging rebound in household consumption “companies still refrained from raising prices, as reflected in the subdued core CPI and downstream PPI,” said Michelle Lam, Greater China economist at Societe Generale SA. “We are starting to see stronger momentum in consumer spending over the last two months, but a more widespread improvement in price pressure is going to take some time.”

— With assistance by James Mayger, Miao Han, and Tomoko Sato

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