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• China's CPI was measured at 0% YoY for September 2023.
• The average inflation for the year is far below the government's target of around 3%.
• The decline in factory activity has continued to persist but has moderated.

The National Bureau of Statistics of China (NBS) released the latest figures on China’s consumer price index (CPI) and producer price index (PPI) for the month of September 2023.

Inflation data

The latest data shows that Chinese consumer inflation was stagnant at 0% YoY, coming in below consensus expectations of 0.2% YoY as per analysts at TradingEconomics.com.

In addition, the CPI had eased from 0.1% YoY in the previous month and is well below the 2.8% YoY registered in September 2022.

Although there were signs of an economic recovery materializing, the underperformance of CPI suggests that consumer distress may be more widespread than reflected in earlier data.

Consumer prices have moderated significantly since last year when they averaged 2.4% YoY between April to October 2022.

Moreover, the average CPI for 2023 stands at 0.43%, which is far below the annual target of around 3% laid out by the government.

The sharp reduction means that policymakers may be watchful of the potential of slipping into deflationary territory in the near future.

Despite the boom in tourism amid ‘golden week’ festivities, there may be particular concern since this trend is expected to decline with the end of the summer season.

Source: China NBS

Monthly inflation

On a monthly basis, inflation for September was at 0.2%, slipping below consensus expectations of 0.3%, as per analysts at TradingEconomics.com.

This was below August’s data of 0.2% MoM and the 0.3% MoM registered in the corresponding interval in the previous year.

Producer prices

The PPI underperformed expectations coming in at (-)2.5% YoY for September versus market forecasts of (-)2.4% YoY.

This was an improvement from the (-)3.0% decline in August 2023, and marked the smallest deflation since March 2023, owing to government stimulus and post-pandemic policies.

In addition, this was the twelfth consecutive month that PPI has contracted, improving since its 2023 low of (-)5.4% YoY in June 2023.

Production materials saw a softer decline from (-)3.7% YoY in August to (-)3.0% YoY in September; while processing and raw materials prices both moderated to (-)2.8% YoY.

Food items weakened from (-)0.2% YoY in the previous report to (-)0.3% YoY; while clothing producer prices saw an increase to 0.8% YoY this month, moderating from 1.0% YoY in August 2023.

On a monthly basis, the PPI was up 0.4% MoM compared to 0.2% MoM previously.

Recent Purchasing Managers’ Index data suggest that factory demand is seeing underlying signs of improving and market watchers will continue to monitor output data.

Outlook

In the latest figures, both retail and producer inflation for September were below expectations, with consumer inflation coming in at 0% YoY and the PPI contracting for the twelfth month in a row.

Overall, the most significant danger to the Chinese economy remains the position of the property market following lower home sales, a lack of investment, and the fear of widespread contagion.

The effectiveness of the government’s relief package for this sector is yet to be gauged, although, on balance, the recovery is likely to remain weak and constrained.

Overall, there were positive indications for economic activity such as the growth in retail sales, industrial value added, consumer sentiment, and services consumption (growing at a strong 19.4% YoY in August 2023), amid relatively low inflation.

However, the weaker-than-anticipated CPI may bring the strength of the consumer into doubt.

Upcoming trade data

Later today, the General Administration of Customs in China will be releasing fresh numbers on trade growth and trade balance.

Market forecasts place the balance of trade at $70.0 billion (£57.44 billion) as against the previous month’s reading of $68.36 billion.

Both exports and imports are expected to contract by (-)7.6% and (-)6.0%, respectively, showing a mild improvement over the August 2023 figures.

Exports and imports had plunged by (-)14.5% YoY and (-) 12.7% in the month of June, respectively, and appear to be seeing a sustained moderation.

These new data points may offer a deeper perspective into the growth trajectory of the economy.

However, these line items continue to experience an aggregate decline and are yet to make a full recovery.

In conclusion, the below expectations CPI and PPI have been an unexpected setback for economic activity in China, suggesting that consumer demand may recede in the coming months.

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