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Deflationary pressures in China intensified in September with lower-than-expected declines in consumer and factory prices, underscoring calls for the Chinese government to take bigger measures to boost the economy.
Saturday’s Treasury press conference promised more spending but offered few new numbers, but the weakness comes as volatile Chinese markets await more information on Beijing’s stimulus plans. The data has been published.
China’s consumer price index rose 0.4% year-on-year in September, the National Bureau of Statistics announced on Sunday, but a Bloomberg survey of analysts predicted it would rise 0.6%, compared to the same month in August. This was down from 0.6%.
The producer price index fell 2.8% from a year earlier, compared to analysts’ expectations for a 2.6% decline. The decline accelerated from 1.8% in August, and was the biggest decline in six months.
Goldman Sachs said consumer inflation was supported by higher food prices, affected by bad weather and seasonal demand ahead of Golden Week, which starts on October 1.
Weak inflation indicators highlight how China’s economy is suffering from deflationary pressures caused by a severe real estate crisis that is hitting household demand.
These come ahead of government data due this week, with Friday’s strong trade data expected to be offset by weaker gross domestic product (GDP) data for the third quarter, painting a picture of the economy doubling fast. It is expected.
Economists expect China’s third-quarter gross domestic product (GDP) growth to fall below the government’s official target of 5% from a year ago.
Analysts warned that policymakers will have to take further action if growth slows further and China’s export engine begins to run into further obstacles, such as protectionism from key trading partners.
“If it’s a 2-speed model, [can] Policy makers, please do not proceed. [will] We need more policy stimulus,” Macquarie economist Larry Hu said in a note.
After months of gradual steps, the People’s Bank of China announced stronger monetary stimulus in late September ahead of National Day, triggering a rally in China’s long-mortal stock market.
Investors are waiting for details on the Chinese government’s plans for additional fiscal spending to back up its monetary stimulus package, but have been disappointed by the lack of detail in subsequent government announcements.
Analysts said the market would like to see the government take a more firm stance on stimulus, but that Beijing will try to avoid flooding the market with credit. Past stimulus packages have been blamed for causing a real estate market bubble.
All eyes are on the next leadership meeting of China’s rubber-stamp parliament, the National People’s Congress, which technically needs to approve any additional spending plans. A meeting is expected to be held in the coming weeks.
According to the Statistics Bureau, the decline in producer prices was due to an 11% year-on-year drop in the iron metal smelting and rolling industry, and a 9.4% drop in gasoline, coal, and other fuel processing industries. Factory prices for consumer goods also fell by 1.3%.
Regarding consumer prices, the bureau announced that the prices of “new energy vehicles” (electric vehicles) and vehicles with conventional engines fell by 6.9% and 6.1%, respectively.
China’s auto market is characterized by intense competition and overcapacity, leading many manufacturers to increase low-cost exports.
