China’s Producer Price Index Shows Easing Deflation
China’s producer price index (PPI) showed signs of improvement in October, with deflation moderating compared to previous months. According to the National Bureau of Statistics (NBS), the PPI fell 2.1% year-on-year, slightly better than the expected 2.2% decline in a Reuters economists’ poll. Although still negative, this marks a slowdown in the three-year-long deflation trend affecting the country’s manufacturing sector.
Senior economist Xu Tianchen from the Economist Intelligence Unit noted that while demand remains weak, the rebound in consumer prices indicates that supply-side policies are improving the balance between supply and demand in key industries.
Consumer Prices Return to Positive Territory
In a positive signal for the broader economy, China’s consumer price index (CPI) rose 0.2% year-on-year in October, reversing a two-month decline and surpassing forecasts of no change. Month-on-month, CPI increased 0.2% after a 0.1% rise in September.
Core inflation, which excludes volatile food and fuel costs, accelerated to 1.2% year-on-year, the fastest pace in 20 months. Food prices, however, continued to decline, falling 2.9% year-on-year, though less sharply than September’s 4.4% drop.
Sectoral Insights: Narrowing Price Declines
The NBS highlighted that capacity management in key industries contributed to moderating price declines. Specific sectors saw notable improvements:
- Coal mining and washing: Price drops narrowed by 1.2 percentage points
- Photovoltaic equipment: Price declines narrowed by 1.4 percentage points
- Battery manufacturing: Price declines narrowed by 1.3 percentage points
- Automobile manufacturing: Price declines narrowed by 0.7 percentage points
These figures suggest that government efforts to curb overcapacity and reduce cut-throat competition are beginning to stabilize industrial prices.
Analysts Urge Caution: Deflationary Pressures Not Over
Despite the encouraging signs, economists warn that deflationary pressures are far from resolved. Zhiwei Zhang, president of Pinpoint Asset Management, emphasized that more months of data are needed to determine whether the deflation trend has fundamentally changed.
China’s economic growth slowed in Q3 2025, with elevated youth unemployment and soft domestic demand adding to concerns. Policymakers have opted for a cautious approach, maintaining stable interest rates for five months amid resilient exports following a trade truce with the U.S.
Government Measures to Support the Economy
China has recently rolled out fiscal and quasi-fiscal measures to boost domestic demand and investment. Notable initiatives include:
- Allocation of 500 billion yuan ($70 billion) in policy-based financial instruments
- Issuance of 200 billion yuan in special local government bonds for provincial investments
These measures aim to support industrial activity, stabilize prices, and encourage consumption, though their impact may take time to materialize fully.
Outlook: Modest Recovery Amid Lingering Risks
While China is on track to meet its 2025 GDP growth target of around 5%, several risks remain. Producer deflation, soft factory activity, and expected export contraction in October suggest that growth momentum is slowing. Analysts also expect consumer price inflation to remain below the government’s 2% target for the year.
Chinese authorities have signaled a strategic shift toward supporting domestic consumption over investment-driven growth, acknowledging structural vulnerabilities exposed by limited room for trade expansion and geopolitical tensions.
Key Takeaways
- China’s PPI fell 2.1% year-on-year in October, showing moderated deflation.
- Consumer prices (CPI) rose 0.2% year-on-year, reversing two months of decline.
- Core inflation reached 1.2%, a 20-month high, while food prices continued to fall.
- Government policies to curb overcapacity and cut-throat competition are stabilizing prices.
- Analysts caution that deflationary pressures persist, and economic recovery remains tentative.
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