China’s economy continues to grapple with deflationary pressures, as evidenced by September’s Consumer Price Index (CPI) data. The modest decline in consumer prices, coupled with ongoing producer price deflation, underscores persistent challenges in domestic demand and international trade relations that are impeding a robust economic recovery.
The latest figures from the National Bureau of Statistics (NBS) revealed a 0.3% year-on-year drop in the CPI for September, exceeding economists’ expectations of a 0.2% decrease. While this represents a slight improvement from August’s 0.4% fall, the underlying trend points to continued weakness. On a monthly basis, prices saw a marginal increase of 0.1%, falling short of the projected 0.2% rise. Meanwhile, the core CPI, which excludes volatile food and energy components, climbed by 1.0% year-on-year, marking its fastest pace since February 2024. This uptick, however, is insufficient to offset the broader disinflationary environment.
Persistent trade tensions and heightened uncertainty surrounding global growth prospects are exacerbating the demand slowdown, making it premature to declare an end to deflationary pressures. Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management, noted that the resurgence of trade friction negatively impacts demand recovery.
The Producer Price Index (PPI) also continued its downward trajectory, declining by 2.3% year-on-year in September. This figure aligns with market forecasts and indicates a consecutive month of decelerating deflation following 2.9% and 3.6% decreases in August and July, respectively. Producer price deflation has now persisted for nearly three years, impacting manufacturer profitability, which is already strained by low consumer confidence and supply chain disruptions stemming from trade policies.
Structural Weaknesses and Policy Responses
The persistent weakness in consumer demand is a significant factor, compounded by the ongoing real estate crisis. Furthermore, exports to the United States face increasing pressure. Potential additional tariffs by the Trump administration could significantly escalate taxes on Chinese exports entering the U.S. market. The NBS spokesperson, Dong Lijun, attributed the CPI decline to the “base effect” from higher price levels in the preceding year, suggesting that without this effect, consumer prices would have risen by 0.5% year-on-year.
Key categories experiencing significant price decreases include food and energy, with drops of 4.4% and 2.7%, respectively. Conversely, industrial consumer goods such as gold and platinum jewelry saw substantial increases of 42.1% and 33.6%, driven by global demand for precious metals.
Travel-related costs also saw declines, with accommodation prices falling by 1.5% and airfare by 1.7%. These reductions were influenced by pre-holiday price competition among hotels, airlines, and travel agencies. Alfredo Montufar-Helu, Managing Director at Ankura Consulting, described these trends as a “clear reminder of the enormous structural challenges China faces in rebalancing its economy,” citing weak demand, persistent overcapacity, and intense price competition as key issues.
In response to these challenges, the government has intensified efforts to curb excessive price competition across various sectors. Measures include reducing industrial capacity and implementing warnings against production facilities that exceed authorized limits. These policies appear to be yielding some results, with industrial profits growing by 20.4% year-on-year in August, reversing three consecutive months of decline. Dong from the NBS indicated that improvements in factory-gate prices are linked to capacity containment in critical sectors like coal processing, ferrous metal smelting, photovoltaics, and batteries.
However, economists caution that the effectiveness of these measures in immediately boosting CPI is limited by the ongoing weakness in domestic demand. Tianzeng Xu, Economist at Economist Intelligence Unit, warned that the stabilization remains “fragile and volatile,” partly due to the unresolved real estate market issues and a subdued labor market.
Emily Carter has over eight years of experience covering global business trends. She specializes in technology startups, market innovations, and corporate strategy, turning complex developments into clear, actionable stories for our readers.