Core CPI Returns to 1% for First Time in Nearly 19 Months

Benefiting from a low base effect and the continued effectiveness of anti-involution and consumption promotion policies, both the Consumer Price Index (CPI) and Producer Price Index (PPI) saw narrowing year-on-year declines in September.

Data released by the National Bureau of Statistics on October 15 showed that September CPI rose 0.1% month-on-month, reversing from flat growth in the previous month, while falling 0.3% year-on-year with the decline narrowing by 0.1 percentage point from the previous month. PPI remained flat month-on-month and declined 2.3% year-on-year, with the decline narrowing by 0.6 percentage points from the previous month.

Core CPI, excluding food and energy prices, rose 1.0% year-on-year, marking the fifth consecutive month of expansion and the first time returning to 1% in nearly 19 months.

Dong Lijuan, chief statistician at the National Bureau of Statistics' Urban Division, analyzed that the year-on-year CPI decline was mainly due to carryover effects. Of the -0.3% year-on-year change in CPI this month, carryover effects contributed approximately -0.8 percentage points, while new price changes this year contributed about 0.5 percentage points. Food prices fell 4.4%, with the decline widening by 0.1 percentage point from the previous month, representing the main factor affecting the year-on-year CPI decline.

Since food and energy prices in the CPI are significantly affected by short-term factors, observing price changes requires looking not only at overall CPI changes but also at core CPI changes, which better reflect price trend movements. In September, core CPI excluding food and energy prices rose 1.0% year-on-year, expanding for the fifth consecutive month. Among this, industrial consumer goods prices excluding energy rose 1.8%, expanding for the fifth consecutive month. Service prices rose 0.6% with relatively stable growth, with medical services and household services prices rising 1.9% and 1.6% respectively, while hotel accommodation and airline ticket prices fell 1.5% and 1.7% respectively.

Fu Linghui, spokesperson for the National Bureau of Statistics, stated at a recent State Council Information Office briefing that positive price changes continue to accumulate. The expansion in core CPI year-on-year growth is mainly driven by rising industrial consumer goods and service prices. From recent developments, there are many favorable factors supporting reasonable CPI recovery. However, it should be noted that market supply-demand relationships remain prominent, and consumer price operations are still at low levels.

Regarding PPI, the index remained flat month-on-month for two consecutive months. Dong Lijuan analyzed that first, improved supply-demand structure drove significant price stabilization in some industries. Second, imported factors affected domestic petroleum-related industry prices month-on-month decline. Falling international oil prices led to month-on-month declines in domestic petroleum-related industry prices.

September PPI fell 2.3% year-on-year, with the decline narrowing by 0.6 percentage points from the previous month. Besides the impact of lower comparison base from the same period last year, Dong Lijuan analyzed that China's various macroeconomic policies continued to show effects, with some industries showing positive price changes. The deepening construction of a unified national market drove narrowing year-on-year declines in related industry prices. Capacity governance achievements in some industries became evident, market competition order continued to optimize, and price year-on-year declines narrowed.

Data showed that coal processing, ferrous metal smelting and rolling processing, coal mining and washing, photovoltaic equipment and component manufacturing, battery manufacturing, and non-metallic mineral products industries saw price declines narrow by 8.3, 3.4, 3.0, 2.4, 0.5, and 0.4 percentage points respectively from the previous month, with these six industries reducing their drag on PPI year-on-year by approximately 0.34 percentage points compared to the previous month.

Additionally, industrial structure upgrading and consumption potential release drove related industry prices to rise year-on-year. Dong Lijuan analyzed that with the accelerated construction of modern industrial systems and favorable development of manufacturing toward high-end, intelligent, and green directions, market demand steadily expanded. Aircraft manufacturing prices rose 1.4% year-on-year, and electronic specialty material manufacturing prices rose 1.2%. Policy effects for boosting consumption continued to manifest, with quality-oriented and upgrade-type consumption demand released. Arts and crafts and ceremonial goods manufacturing prices rose 14.7%, sports ball manufacturing prices rose 4.0%, and nutritional food manufacturing prices rose 1.8%.

Feng Lin, Executive Director of the Research and Development Department at Orient Securities Credit, indicated that influenced by declining comparison base from the same period last year, "anti-involution" policies limiting capacity release in some industries, and expected strengthening of pro-growth policies, fourth-quarter PPI year-on-year decline is expected to narrow to within -2.0%.

Pang Ming, specially-appointed senior researcher at the National Institution for Finance and Development, stated that with a series of domestic demand expansion and consumption promotion policies continuing to show effectiveness, the consumer market maintains steady growth and new consumption momentum continues to strengthen. Combined with deepening construction of a unified national market and intensified governance of enterprises' low-price disorderly competition, social demand continues to warm up and price operation signals become more positive.