Inflation in China Eased Unexpectedly in October

Photo Credit: Daxue Consulting

China’s consumer price index (CPI) rose by 2.1 percent year-on-year in October, marking the lowest level in seven months and down 0.7 percentage point from a 29-month high in September, according to the National Bureau of Statistics.

The CPI eased to a seven-month low in October, giving the signal of subdued price pressure in the fourth quarter and providing room for macroeconomic policies to beef up support for domestic demand.

According to the national statistics agency, the easing in inflationary pressure could be attributed to a higher comparison base, rising supplies of vegetables, fruits and aquatic products, and softer consumer demand after the National Day holiday, which ended in early October.

The abatement in inflation was better than expected, with the CPI having been expected to rise by a mere 2.4% last month.

Meanwhile, China’s producer price index (PPI), which gauges factory-gate prices, declined by 1.3 percent year-on-year in October due to a high comparison base, following a 0.9 percent rise in September and marking the first drop in almost two years.

Experts said the falling CPI and PPI readings have painted a picture of subdued inflationary pressure in China while many major economies, such as the United States and the eurozone, are still raising interest rates to curb lingering high inflation.

It is expected the full-year CPI growth to stand at around 2 percent, substantially below the control target of about 3 percent, according to economists.

China’s contained inflation can underpin the country’s accommodative monetary policy stance despite ongoing global tightening. Some experts said they expect a cut in the reserve requirement ratio late this year or early next year, which would reduce the amount of cash banks must hold as reserves, and thus boost lending and demand.

More policy efforts are needed to boost domestic demand, as China’s exports have started to slow down amid falling global demand. Stimulating domestic consumption can help maintain the growth of midstream manufacturers reliant on exports.

Whilst policy efforts to stabilize demand, including those to boost infrastructure construction and equipment upgrade investment, have had some effect, with the PPI up 0.2 percent month-on-month in October, reversing a 0.1 percent drop a month earlier.

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