In-Depth Analysis of China’s Inflation and Deflationary Trends – October 2024

Date: November 11, 2024

Broker: UOB Kay Hian

Overview of Inflation and Deflationary Pressures

In October 2024, China’s consumer price index (CPI) and producer price index (PPI) exhibited ongoing deflationary pressures, especially in upstream pricing. The headline CPI inflation slipped slightly to 0.3% year-on-year (yoy), below the Bloomberg consensus of 0.4% yoy. This marks the ninth consecutive month of positive CPI, albeit at a slower pace. Meanwhile, PPI inflation continued its decline, falling from -2.8% in September to -2.9% yoy, driven mainly by broad-based price contractions.

Consumer Price Index (CPI) Analysis

Headline CPI inflation in October 2024 eased further to 0.3% yoy, undershooting Bloomberg’s consensus of 0.4% yoy. This decrease was largely driven by a slowdown in food inflation, which stood at 2.9% yoy, a 0.4 percentage point (ppt) decrease from the previous month. The continued deflation in transport and communication, at -4.8% yoy, was due to price competition in the electric vehicle (EV) market.

Food Prices

Vegetable prices remained high at 21.6% yoy, despite a 1.3ppt decrease due to adverse weather conditions. Pork prices rose by 14.2% yoy, a 2ppt decrease from the previous month. These fluctuations highlight the volatility in food prices driven by external factors such as weather and market competition.

Core CPI

Core CPI, which excludes food and energy prices, edged up slightly to 0.2% yoy, a 0.1ppt increase. Despite this uptick, core inflation remains weak, indicating subdued underlying inflationary pressures. Goods inflation fell to 0.2% yoy, while services inflation strengthened to 0.4% yoy, driven by higher costs in other products and services (4.7% yoy) and recreational, educational, and cultural articles (0.8% yoy).

Producer Price Index (PPI) Analysis

PPI inflation growth fell further to -2.9% yoy in October, below Bloomberg’s consensus of -2.5% yoy. This decline highlights weaker pricing power across manufacturers, especially in durable consumer goods, which saw a significant drop of -3.1% yoy.

Producer Goods

Producer goods PPI growth remained steady at -3.3% yoy. Within this category, mining and quarrying experienced notable weakness, with prices falling by -5.1% yoy. Fuel and power prices dropped by -6.2% yoy, while chemical raw materials saw a decline of -5.3% yoy.

Consumer Goods

Consumer goods PPI growth softened to -1.6% yoy, indicating weaker pricing power among manufacturers. This was especially evident in durable consumer goods, which experienced a significant decrease of -3.1% yoy. Other categories such as food and clothing also saw declines, reflecting the broad-based nature of the deflationary pressures.

Detailed Sectoral Insights

The report provides a detailed breakdown of CPI and PPI changes across various sectors:

Changes in CPI

• Food, Tobacco, and Liquor: 2.0% yoy, a 0.3ppt decrease.
• Clothing: 1.1% yoy, a 0.2ppt decrease.
• Residence: -0.1% yoy, unchanged from the previous month.
• Daily Necessities and Services: 0.1% yoy, unchanged from the previous month.
• Transportation and Communication: -4.8% yoy, a 0.7ppt decrease.
• Recreational, Educational, and Cultural Articles: 0.8% yoy, a 0.2ppt increase.
• Medical-Related Articles: 1.1% yoy, a 0.1ppt decrease.
• Other Products and Services: 4.7% yoy, a 1.2ppt increase.

Changes in PPI

• Producer Goods: -3.3% yoy, unchanged from the previous month.
• Mining and Quarrying: -5.1% yoy, a 2.6ppt decrease.
• Raw Materials: -4.0% yoy, a 0.8ppt decrease.
• Processing: -2.9% yoy, a 0.4ppt increase.
• Consumer Goods: -1.6% yoy, a 0.3ppt decrease.
• Fuel and Power: -6.2% yoy, a 2.1ppt decrease.
• Ferrous Metal Materials: -6.9% yoy, a 0.1ppt decrease.
• Non-Ferrous Metal Materials and Wires: 9.3% yoy, a 1.9ppt increase.
• Chemical Raw Materials: -5.3% yoy, a 2.0ppt decrease.
• Wood and Pulp: -1.0% yoy, a 0.9ppt decrease.
• Building Materials and Non-Metallic: -4.1% yoy, a 0.1ppt increase.
• Other Industrial Raw Materials and Semi-Products: -1.7% yoy, unchanged.
• Agricultural and Sideline Products: -4.5% yoy, a 0.7ppt decrease.
• Textile Raw Materials: -1.9% yoy, a 0.2ppt decrease.

Conclusion

The October 2024 inflation report for China highlights ongoing deflationary pressures, particularly in upstream pricing. While consumer price inflation remains positive, it is subdued, with significant declines in the PPI indicating weaker pricing power across various sectors. The detailed sectoral analysis provides valuable insights into the specific areas experiencing the most significant price changes, offering a comprehensive view of the current economic landscape.