The data released by the Chinese Communist Party (CCP) on Saturday, November 9th, showed that the Consumer Price Index (CPI) for October rose at the slowest pace in four months, reaching a new low in terms of growth. Meanwhile, producer prices continued to contract, deepening the deflationary pressure. This indicates that the CCP’s stimulus measures are far from being able to lift the Chinese economy out of its current predicament.
According to the National Bureau of Statistics of China, the national CPI rose by 0.3% year-on-year in October, slowing down from 0.4% in September, marking a new low since June and below the economist survey forecast of 0.4%.
After excluding the volatile food and fuel prices, the core inflation rate for October increased by 0.2%.
Bloomberg reported that despite Beijing’s stimulus measures since the end of September, including interest rate cuts, increased bank loan cash, and support for the stock and real estate markets, the continued near-zero inflation rate provides the latest evidence that domestic demand in China remains subdued.
The data released by the National Bureau of Statistics on Saturday also showed that the country’s industrial producer prices fell by 2.9% year-on-year in October, exceeding September’s 2.8% decline and the expected 2.5%. This marked the biggest drop in the past 11 months.
The decline in producer prices has squeezed business profits, leading to reluctance to invest. Factories in industries such as oil and gas extraction, petroleum and coal processing, chemical manufacturing, and automobile production in China have experienced intensified contractions.
Deflation causes consumers to delay purchases in anticipation of further price declines, affecting business income and suppressing investment, ultimately leading to further salary cuts and layoffs. Families facing wage cuts or unemployment further reduce spending, driving the Chinese economy into a vicious cycle, making deflation more entrenched.
Goldman Sachs stated in a report this month that China’s overall consumer inflation rate is expected to remain low at 0.8% next year, while producer prices are not expected to turn positive until the third quarter of 2025.
In the latest move, the CCP’s top legislative body on Friday, November 8th, approved a comprehensive plan of 1 trillion yuan (approximately 1.4 trillion dollars) to alleviate the burden of local government’s “hidden debts.” This has disappointed many investors as Beijing did not announce new fiscal stimulus measures aimed at boosting the economy.
According to Reuters, analysts believe that this comprehensive plan may not have a significant short-term impact on boosting economic activity, domestic demand, and prices.
The real estate industry was once China’s economic engine, accounting for about a quarter of the country’s economy. Real estate has long been the most important asset for Chinese households, representing 70% of their wealth. However, the industry has been in crisis in recent years, leading to tighter budgets for Chinese families.
Since the real estate bubble burst and dragged down the economy, the CCP has sought to rely on exports as the main driver of economic growth. However, the dumping of cheap Chinese products in foreign markets has led to resistance from many countries. Furthermore, U.S. President-elect Trump pledged during his election campaign to increase tariffs on Chinese goods to 60% to reduce the U.S.-China trade deficit, which could significantly curb Chinese exports to the U.S. This may add even more pressure on the CCP authorities.