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China witnessed deflationary pressures in September as consumer and factory prices fell below expectations, prompting calls for Beijing to implement more significant measures to stimulate the economy.
The latest data comes amidst anticipation in China’s volatile markets for detailed information about Beijing’s stimulus plans following a Ministry of Finance press conference that promised increased spending but provided limited new figures.
In September, China’s consumer prices index rose by 0.4% year on year, lower than the forecasted 0.6% increase, while the producer prices index dropped by 2.8% compared to analysts’ predicted 2.6% decline. The decline in producer prices was the most significant in six months.
Goldman Sachs attributed the rise in consumer inflation to increasing food prices influenced by adverse weather conditions and seasonal demand before the Golden Week holiday in early October.
The weak inflation figures indicate the impact of deflationary pressures on China’s economy due to a severe property crisis affecting household demand.
Economists anticipate that China’s third-quarter GDP growth will fall below the official target of 5% year on year, reflecting a two-speed economy with robust trade numbers offset by weak GDP figures.
If economic growth continues to slow and external factors like trade protectionism hinder China’s exports, policymakers may need to implement further stimulus measures.
After announcing a more robust monetary stimulus in late September, the central bank’s efforts led to a market rally in China’s stock markets. Despite market expectations for detailed fiscal spending plans to complement the monetary stimulus, the lack of clarity in government announcements has left investors disappointed.
While markets desire a more decisive stance on stimulus from the government, Beijing aims to avoid excessive credit expansion to prevent creating another property bubble, as seen in past stimulus efforts.
Attention is now focused on the upcoming National People’s Congress meeting, where additional spending plans must be approved. The statistics bureau attributed the decline in producer prices to industries like metal smelting and fuel processing, while consumer goods’ factory prices also decreased.
Notably, the price of electric vehicles and traditional engine cars decreased, reflecting the competitive and oversupplied nature of China’s automotive market.