China's Economic Indicators for October

BEIJING (Reuters) – China's consumer prices rose at the slowest pace in four months in October, while producer price deflation deepened, as reported on Saturday. This occurs amid Beijing's commitment to stimulus measures to support its struggling economy.

In its latest effort, China's top legislative body approved a 10 trillion yuan ($1.4 trillion) package on Friday to alleviate local government "hidden debt" burdens. However, this approach does not directly inject funds into the economy, which some investors had anticipated.

Analysts believe this package is unlikely to significantly boost economic activity, demand, and prices in the near term.

The Consumer Price Index (CPI) rose 0.3% year-over-year in October, a decline from September's 0.4% increase, marking the lowest rise since June. This was below the 0.4% increase forecasted by economists in a Reuters poll. Conversely, core inflation, excluding volatile food and fuel prices, rose 0.2% in October, an acceleration from September’s 0.1%.

Bruce Pang, chief economist at JLL, noted that the Golden Week holiday's impact on stimulus policies had not yet become apparent. He anticipates CPI will continue to rise while core inflation remains mild, allowing room for further interest rate cuts by authorities early next year.

Following the COVID-19 pandemic, the central bank introduced aggressive monetary support measures to revive economic growth in late September.

MORE SUPPORT EXPECTED

The recently passed stimulus plan by the National People's Congress standing committee may disappoint investors who anticipated stronger fiscal measures to boost consumption. Finance Minister Lan Foan stated that further stimulus is forthcoming, including tax policies to support the housing market and expediting bank recapitalization efforts.

Some analysts suggest Beijing may want to conserve some of its economic resources until a potential shift in U.S. leadership occurs in January.

On a month-to-month basis, China's CPI fell 0.3%, down from an unchanged outcome in September and below the anticipated 0.1% decline. Declining food prices contributed to this decline.

With 70% of household wealth tied up in the struggling real estate sector, consumers are wary of spending, leading to deflationary pressures. Goldman Sachs forecasts that China's headline consumer inflation will likely remain low next year at 0.8%, with producer prices not expected to rise until the third quarter of 2025.

In October, producer prices dropped 2.9% year-over-year, worse than the previous month's 2.8% drop and below the expected 2.5% decline. This marked the largest drop in 11 months, particularly in sectors like petroleum extraction, chemical manufacturing, and auto manufacturing.

Zhou Maohua, a macroeconomic researcher at China Everbright Bank, stated that while some counter-cyclical policies may improve consumption and investment, recovery in the domestic housing market and consumer spending will take time.

($1 = 7.1785 Chinese yuan renminbi)