– Core CPI increased 1.0% year-on-year in September, marking the first time above 1% in 19 months and the fifth consecutive month of expansion.
– PPI declined 2.3% year-on-year, but the drop narrowed by 0.6 percentage points, signaling marginal improvement in industrial demand.
– Food prices, particularly pork and vegetables, continued to drag on overall CPI, while non-food items like gold and home appliances drove core inflation higher.
– Policy measures against internal competition are stabilizing prices in sectors like coal, steel, and photovoltaics, supporting PPI recovery.
– Experts project CPI could turn positive year-on-year by year-end, with PPI improvements expected to continue amid regulatory support.
China’s economic landscape is showing tentative signs of stabilization as key inflation indicators released in October reveal a nuanced picture of recovery. The National Bureau of Statistics (国家统计局) data for September highlights a pivotal moment: core consumer price index (CPI), which excludes volatile food and energy prices, rose 1.0% year-on-year, breaking the 1% threshold for the first time in 19 months. This core CPI milestone, coupled with a narrower decline in the producer price index (PPI), offers critical insights for global investors monitoring Chinese equity markets. Amid persistent deflationary pressures, these trends suggest that policy efforts to bolster domestic demand and curb excessive competition are beginning to bear fruit. For institutional investors and corporate executives, understanding the drivers behind this core CPI resurgence is essential for navigating opportunities in sectors poised for growth.
Core CPI Breaks 1% Threshold After 19 Months
The September core CPI reading of 1.0% year-on-year represents a significant economic turning point, ending a prolonged period of subdued inflation. This marks the fifth consecutive month of expansion in core CPI, underscoring a gradual shift in domestic price dynamics. According to Dong Lijuan (董莉娟), Chief Statistician of the Department of Urban Surveys at the National Bureau of Statistics (国家统计局), the sustained rise reflects broader structural improvements in consumer demand, particularly in non-food categories.
Key Drivers Behind the Core CPI Increase
Several factors contributed to the core CPI surpassing 1%. Gold and platinum jewelry prices surged by 42.1% and 33.6% year-on-year, respectively, driven by global commodity trends and safe-haven demand. Additionally, prices for home appliances, daily household goods, and communication tools rose by 5.5%, 3.2%, and 1.5%, highlighting the impact of policies aimed at stimulating consumption and reducing低价竞争 (low-price competition). Liu Xingchen (刘星辰), Macro Analyst at Everbright Securities Research Institute (光大证券研究所), emphasized that non-food prices were the primary driver, noting that efforts to expand domestic demand have begun to stabilize prices in key consumer segments. Service prices remained relatively stable, indicating a balanced recovery across sectors.
Analyzing the Overall CPI Performance
While core CPI showed strength, the broader CPI remained in negative territory, declining 0.3% year-on-year in September. This dichotomy highlights the ongoing challenges in China’s consumption landscape, where food prices continue to exert downward pressure. On a month-on-month basis, CPI edged up 0.1%, suggesting a slow but steady upward trajectory.
Food Price Pressures and Their Impact
Food prices fell 4.4% year-on-year in September, with significant declines in pork (down 17.0%), fresh vegetables (down 13.7%), and eggs (down 13.5%). The pork sector, in particular, remains a drag due to oversupply and cyclical factors. In August, the National Development and Reform Commission (国家发展和改革委员会) triggered a Level 3 warning when the pig-to-grain ratio fell below 6:1, prompting plans for central frozen pork reserves to stabilize prices. Guojin Securities (国金证券) research reports indicate that short-term pressures may persist, but industry capacity reductions and cost-line breaches could lead to a bottoming out of the sector. Conversely, beef and lamb prices rose 4.6% and 0.8%, respectively, with lamb recording its first increase in 44 months, potentially signaling the start of a new meat cycle that could support CPI in the coming months.
PPI Improvements Signal Industrial Recovery
The producer price index (PPI) showed encouraging signs of stabilization, with a year-on-year decline of 2.3% in September, narrowing by 0.6 percentage points from August. Month-on-month, PPI was flat, ending a period of consecutive declines and reflecting marginal improvements in industrial demand. This core CPI and PPI alignment suggests that deflationary risks are easing, though challenges remain in certain sectors.
Sector-Specific Gains and Policy Impacts
Key industries witnessed price stabilization due to supply-demand adjustments and regulatory interventions. Coal processing prices rose 3.8% month-on-month, while coal mining and washing increased 2.5%. Black metal smelting and pressing edged up 0.2%, and photovoltaic equipment manufacturing shifted from a 0.2% decline to a 0.8% increase. Non-metal mineral products and lithium-ion battery manufacturing saw smaller declines, indicating reduced competitive pressures. Dong Lijuan (董莉娟) attributed these trends to China’s efforts to build a national unified market and治理产能 (manage capacity), which have curbed无序竞争 (disorderly competition). For instance, the National Development and Reform Commission (国家发展和改革委员会) and State Administration for Market Regulation (市场监管总局) issued a joint announcement on September 28 to address price无序竞争, emphasizing cost assessments and fair competition practices. These measures have helped six major industries reduce their downward pull on PPI by approximately 0.34 percentage points.
Expert Insights and Market Implications
Financial analysts and economists are closely interpreting these indicators for their implications on Chinese equities and broader economic policy. Liu Xingchen (刘星辰) of Everbright Securities (光大证券) noted that PPI performance slightly exceeded market expectations, aided by fading high-base effects and anti-internal competition policies. He projects that CPI could turn positive year-on-year by year-end as base effects diminish.
Quotes from Industry Leaders
Dong Zhongyun (董忠云), Chief Economist at AVIC Securities (中航证券), highlighted that anti-internal competition initiatives could boost industrial capacity utilization and foster reflation, supporting capital market stability. Investors should monitor sectors like renewable energy and advanced manufacturing, where policy tailwinds are strongest. For example, the stabilization in photovoltaic and battery prices aligns with China’s dual carbon goals, offering potential opportunities in green equities. Global fund managers can leverage these insights to adjust portfolios toward industries benefiting from core CPI resilience and PPI recovery.
Policy Environment and Future Projections
China’s regulatory framework is evolving to address economic headwinds, with a focus on sustaining the core CPI recovery and supporting industrial sectors. Recent announcements, such as the September 28公告 on price disorder competition, underscore a commitment to market秩序 (order) and fair pricing. These policies are expected to enhance profitability in oversupplied industries and bolster investor confidence.
Economic Forecasts and Investment Strategies
Looking ahead, analysts anticipate continued core CPI growth, driven by non-food inflation and service price stability. Guojin Securities (国金证券) reports suggest that livestock cycles, particularly for beef, could further support CPI. For PPI, improvements are likely to persist as capacity治理 (governance) takes effect, though global commodity volatility remains a risk. Institutional investors should consider diversifying into consumer discretionary and industrial sectors showing price momentum, while hedging against food-related volatilities. The core CPI trajectory will be critical for monetary policy decisions, with the People’s Bank of China (中国人民银行) likely maintaining a cautious stance on stimulus.
The September economic data underscores a nuanced recovery, with core CPI’s breach of 1% serving as a beacon of optimism amid broader deflationary pressures. As policy measures gain traction and industrial demand gradually improves, investors have a window to capitalize on sectors aligned with China’s consumption upgrade and manufacturing modernization. Stay informed by tracking monthly releases from the National Bureau of Statistics (国家统计局) and regulatory updates, and consider consulting expert analyses to refine investment strategies in this evolving landscape.