China eyeing stronger long-term stimulus as deflationary pressures mount

China may now have to think deeply and consider announcing more stimulus measures to revive its shaky economy as well as improve demand after the country’s consumer inflation unexpectedly eased in September and producer price deflation deepened.  

As per the data by the National Bureau of Statistics (NBS), China’s consumer price index, or CPI, in September, rose 0.4 per cent from a year earlier and was recorded the slowest in three months, against a 0.6 per cent rise in August.

The producer price index (PPI) fell at the fastest pace in six months, down 2.8 per cent year-on-year in September, compared to a 1.8 per cent decline in August and below an expected 2.5 per cent decline.

More from World

Nepal's new PM pays homage to people died during the Gen Z protest in her first national address This Week in Explainers: How recovering from Gen-Z protests is a Himalayan task for Nepal

China targets 5% growth in economy this year

China has been aiming for around 5 per cent economic growth for this year and to meet the target, the recent weeks saw a number of stimulus efforts being announced to spur demand. However, a report by Reuters mentioned some analysts as saying that the moves may just offer temporary relief, adding that stronger measures are soon required else the weakness could extend well into next year.  

On Saturday, China’s Finance Minister Lan Foan said that this year, the Xi Jinping-led government will announce more “counter-cyclical measures”, but no details, including the size or the timing of fiscal stimulus being prepared, have been revealed.  

Impact Shorts

More Shorts

‘The cries of this widow will echo’: In first public remarks, Erika Kirk warns Charlie’s killers they’ve ‘unleashed a fire’

Trump urges Nato to back sanctions on Russia, calls for 50–100% tariffs on China

“China faces persistent deflationary pressure due to weak domestic demand. The change of fiscal policy stance as indicated by the press conference on Saturday would help to deal with such problems,” Reuters quoted Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, as saying.

Late in September this year, China’s central bank had announced the most aggressive monetary support measures since the COVID-19 pandemic which included a host of measures to help pull the property sector out of a severe, multi-year slump, including mortgage rate cuts.

There have been talks among investors as well as analysts who are hoping for an announcement of more specific proposals during the China’s parliament upcoming meeting expected in the coming weeks.  

‘Decisive action required’

“The size of the fiscal stimulus matters. Decisive action is required before deflationary expectations become further entrenched,” Zhang further said.

Several China watchers believe that the Asian nation must also address more deeply-rooted structural issues including industrial overcapacity and sluggish consumption.

Poor demand coupled with surplus domestic investment have pushed the prices down and forced companies to reduce wages or sack workers to cut costs, which has further dampened consumer confidence.

Core inflation, which excludes volatile food and fuel prices, was recorded at 0.1 per cent in September, down from 0.3 per cent in August, which also points at mounting deflation pressures.  

The core reading has been in the low range of below 1.0 per cent for 20 consecutive months, reflecting a lack of momentum in prices and the need to stimulate consumption, Bruce Pang, Chief Economist and Head of Research in Greater China at JLL, was quoted as saying by Reuters.

CPI was unchanged month-on-month, versus a 0.4 per cent gain in August and below an estimated 0.4 per cent increase.

Food prices increased 3.3 per cent on-year in September compared with a 2.8 per cent rise in August, while non-food prices were down 0.2 per cent, reversing a 0.2 per cent uptick in August.

Among non-food items, the decline in energy prices deepened, and tourism prices switched to down from up with declines in airfares and hotel accommodation widening, the NBS said.