China’s consumer inflation turns positive in October, but factory prices remain in decline

Consumer inflation in China moved slightly higher in October, with the consumer price index (CPI) rising 0.2% year-on-year, according to data released Sunday by the country’s National Bureau of Statistics.

The increase broke a months-long stretch where consumer prices hovered at or below zero, which is the first positive reading since June and the strongest level seen since January.

On a month-on-month basis, CPI also rose by 0.2%, compared with Reuters-polled analysts’ expectations of zero growth, thanks to the National Day and Mid-Autumn holiday period, where spending tends to increase across travel, dining, and household goods.

Food remained a point of pressure. Prices for food products fell 2.9% from the same period last year. However, compared to September, even food managed a slight 0.2% monthly uptick.

Producer prices continue their downward streak

At the factory level, conditions remained under strain. Producer prices declined 2.1% from last year, easing only slightly from analyst expectations of a 2.2% decline, and making the third straight year where wholesale prices have been in negative territory.

On a monthly basis, producer prices nudged up 0.1%, though that increase does not reverse the ongoing downward trend manufacturers have been facing.

Dong Lijuan, serving as chief statistician at the bureau’s urban division, explained that “in October, policies aimed at expanding domestic demand continued to take effect, coupled with the boost from the National Day and Mid-Autumn Festival holidays.”

The combination of policy measures and seasonal activity helped support consumer spending, but the structural problems around industrial pricing are still present.

Industrial profits in September climbed more than 21%, suggesting that certain companies are still finding ways to maintain earnings. However, analysts continue to point to long-standing issues involving the financial structure of local governments.

Many local administrations depend heavily on tax revenue tied to industrial production. This creates incentives to push factories to maintain or expand output, even when demand weakens, leading to overcapacity and increasing competition among producers.

Meanwhile, an official survey released on October 30 showed that manufacturing activity contracted more than expected, falling to its lowest level in six months. Sub-indexes covering new orders, production, employment, and raw material inventories all recorded deeper contractions.

On the external front, exports in October fell unexpectedly. Shipments to the United States dropped 25%, and that was the seventh consecutive month of double-digit declines, per the NBS.

During a meeting in South Korea on October 30, President Donald Trump and President Xi Jinping agreed to a trade truce, reducing the risk of escalation that had raised concerns over the possibility of a broader trade conflict.

Policymakers in Beijing have emphasized that the economic plan for the next five years will require efforts to “vigorously boost consumption” and connect domestic demand with long-term investment planning.

Separately, the Ministry of Commerce announced the temporary suspension of a clause connected to export controls on dual-use items.

The suspension, effective immediately until November 27 next year, pauses restrictions introduced in December 2024 that banned the export of materials like gallium, germanium, antimony, and also specific superhard materials to the United States.

A notice under the Export Control Law had previously blocked exports aimed at military users and denied related licensing, according to CNBC.

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