China’s Economic Recovery Remains Uneven as Inflation Stays Muted, Policy Support May Be Necessary

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China’s economic landscape in September demonstrated a subdued trajectory, with consumer prices exhibiting a stagnant trend while factory gate prices showed signs of a gradual recovery. This has highlighted the need for potential policy interventions to ensure sustained economic progress.

The consumer price index recorded no change from the previous year, coming in below expectations. Meanwhile, core inflation, excluding energy and food, experienced a moderate 0.8% increase. The producer price index fell 2.5% annually, marking the smallest decline in factory prices seen in the last seven months.

Persistent concerns about the looming threat of deflation were evident, as the decline in producer prices marked the twelfth consecutive monthly drop. Weaker food prices, notably in key commodities such as pork and fresh vegetables, contributed to the overall subdued inflation figures. However, the rise in services inflation to a 19-month high indicated that the low overall inflation might be more linked to excess industrial capacity rather than domestic demand weakness.

The data underscored the ongoing challenges in the recovery of domestic demand, with the slowdown in the property sector continuing to weigh on consumer confidence. Notably, Beijing’s selective approach to policy support in the face of lackluster growth and the ongoing debt crisis in major real estate developers remained a prominent factor.

In this context, the suggestion of potential policy support to bolster the economic recovery gained prominence, with experts emphasizing the need for calibrated measures to address the persisting challenges and ensure sustained progress in China’s post-Covid economic landscape.