Currently, prolonged low price levels represent one of the main challenges facing China's economy and serve as an important reason for the "temperature gap" between stable macroeconomic operations and weaker microeconomic sentiment.
Prices serve as the economy's "barometer" and more importantly as the "temperature gauge" for people's livelihoods and businesses. Fu Linghui, spokesperson for the National Bureau of Statistics and Chief Economist, recently stated when releasing the latest economic data that August's major indicators remained generally stable, with economic growth maintaining "stability," employment remaining "stable," and prices also staying "stable." Among these three areas of stability, prices have drawn particular attention due to their continued low levels.
Since the beginning of this year, China's Consumer Price Index (CPI) has remained at low levels for an extended period. However, positive changes driven by policy measures are accumulating. In August, core CPI rose 0.9% year-on-year, expanding by 0.1 percentage point from the previous month, marking four consecutive months of recovery. Fu Linghui noted that this was primarily driven by warming prices in industrial consumer goods and services.
As we are currently at a critical stage for forward-looking planning of the 15th Five-Year Plan, future economic trends and price control pathways have become focal points in the macroeconomic field. Yan Yan, Deputy Director of the Economic Research Institute at Renmin University of China and Chairman of China Chengxin International Credit Rating Co., Ltd., mentioned that in the first half of this year, China's economic growth rate of 5.3% exceeded market expectations. However, downward pressure on the economy became prominent in the third quarter, with some macroeconomic indicators declining in August. To achieve the annual economic growth target of around 5%, questions arise about how to stabilize prices, expand domestic demand, and whether comprehensive stimulus policies similar to those in the fourth quarter of last year are needed.
On September 21, the China Macroeconomic Forum (CMF) released its third-quarter 2025 China Macroeconomic Analysis and Forecast Report, proposing that standing at the policy window of the 15th Five-Year Plan, high attention should be paid to price issues, with multiple measures implemented to promote reasonable price recovery during the 15th Five-Year Plan period. At the forum held the same day, multiple experts conducted in-depth discussions on the current state of low prices, influencing factors, and breakthrough strategies, providing key insights for stabilizing prices and consolidating the foundation for economic growth during the 15th Five-Year Plan period.
**Policy Implementation and "Anti-Involution" Effects Drive Continued Core CPI Recovery**
August price indices showed certain positive changes. Against the backdrop of overall low price levels, core CPI has risen for four consecutive months, reflecting improvement in supply-demand relationships and consumer markets. This upward trend is inseparable from policy promotion and market environment optimization.
Fu Linghui explained that since the beginning of this year, trade-in policies for consumer goods have been strengthened and expanded, corporate disorderly competition governance has steadily advanced, and supply-demand relationships in industrial consumer goods have continued to improve, driving price increases. Meanwhile, special actions to boost consumption have been implemented in depth, with residents' summer travel and cultural tourism consumption heating up and demand for high-quality social services expanding, pushing up service prices.
With August core CPI reaching its highest level since February 2024, does this indicate that prices have reached a turning point? Fu Linghui stated that judging economic indicator turning points requires careful analysis. From recent developments, there are many favorable factors promoting reasonable CPI recovery. First, consumer demand is expected to expand. As weather cools, food consumption demand has increased somewhat, and with the Mid-Autumn Festival and National Day holidays approaching, holiday consumption is also expected to expand, which will help drive CPI growth. Second, seasonal factors provide support. With seasonal changes, clothing updates for new seasons may see stable to rising prices. After the start of the new school semester, expanded demand for educational services will also drive related price changes. Third, "anti-involution" governance effects are becoming apparent. Recent lawful and regulatory governance of corporate disorderly competition has brought positive changes to related industry production prices. The transmission from production prices to consumer prices also benefits CPI recovery.
The Producer Price Index (PPI) also shows positive signs. In August, national producer prices fell 2.9% year-on-year, with the decline narrowing by 0.7 percentage point from the previous month, remaining flat month-on-month.
Guan Tao, Chief Global Economist at BOC Securities, noted that "anti-involution" efforts are helping improve prices. He stated that whether for current price operation improvements or future efforts to further promote price recovery, supply-side "anti-involution" centered on "resisting corporate disorderly competition and promoting capacity governance in key industries" is being used as an important policy tool.
Data powerfully demonstrates that "anti-involution" is taking effect. In August, producer prices in coal processing, ferrous metal smelting and rolling processing, and coal mining and washing industries narrowed by 3.2-10.3 percentage points from the previous month. Year-on-year declines in photovoltaic equipment and component manufacturing and new energy vehicle manufacturing prices narrowed by 2.8 and 0.6 percentage points respectively. These five industries reduced the downward pull on year-on-year PPI by approximately 0.5 percentage point compared to the previous month.
However, concerns remain in the price sector. Mao Zhenhua, Joint Director of the Economic Research Institute at Renmin University of China and Chief Economist at China Chengxin International, pointed out that August CPI fell 0.4% year-on-year and remained flat month-on-month, with market supply-demand contradictions not yet alleviated. CPI has fluctuated around zero for 30 consecutive months, while PPI has remained in negative territory for over 30 months.
Asset price volatility has also intensified the price predicament. Mao Zhenhua mentioned that although the year-on-year decline in housing prices in 70 large and medium-sized cities narrowed overall in August, they remain in a long-term downward channel. Household balance sheet contraction through the chain of "housing price decline—reduced household consumption willingness—enterprise profit pressure—deteriorating employment and income expectations" has intensified the "negative cycle" on the economy.
More noteworthy is that the GDP deflator (ratio of nominal GDP to real GDP), closely related to prices, has been negative for nine consecutive months, creating the longest historical record of negative growth. Nominal GDP growth is significantly lower than real GDP growth, which is unfavorable for healthy economic circulation.
**Multiple Factors Constrain Price Recovery**
Maintaining reasonable price levels is one of the necessary conditions for economic growth. If prices continue to operate at low levels, it will affect enterprise production increases and revenue growth, ultimately impacting employment and income.
This year's target for consumer price growth is around 2%. The report mentioned that combining the experience of price target setting by major global economies, 2% inflation has become the widely recognized "price stability" standard among developed economies and aligns with China's reality of transitioning from an industrial powerhouse to a consumption powerhouse.
Multiple experts believe that currently, prolonged low price levels represent one of the main challenges facing China's economy and serve as an important reason for the "temperature gap" between stable macroeconomic operations and weaker microeconomic sentiment.
Why is the low price situation difficult to reverse? Several experts analyzed the root causes from multiple dimensions, believing this results from the overlapping of multiple contradictions including economic growth rate shifts, internal and external supply-demand imbalances, and weak expectations among macroeconomic entities.
"Economic fundamentals are the foundation determining price trends," Mao Zhenhua noted. During the 15th Five-Year Plan period, China's economic growth rate will continue to shift, with economic growth pressure directly constraining price recovery—periods of high economic growth often accompany price increases, while during growth rate transition periods, enterprise profit margins narrow and household income growth slows, leading to lack of upward momentum for goods and service prices.
Meanwhile, rising external environment uncertainties and external demand pressure, combined with weak household income expectations and employment pressure, further suppress consumption improvements and intensify downward price pressure. He believes the core constraint of this round of persistently low prices lies in insufficient demand, a factor that may continue to affect price trends during the 15th Five-Year Plan period.
Price issues were often overlooked in the past but have now become one of the core variables affecting people's livelihoods, enterprise operations, and economic growth. Gao Peiyong, Member of the Chinese Academy of Social Sciences, pointed out that persistent price weakness has two core causes: first, increased economic downward pressure, and second, expectation declines triggered by changes in income and wealth distribution patterns. These expectation changes will profoundly affect current consumption and price levels, and macroeconomic analysis must include expectations as a consideration variable.
"From a long-term perspective, people's expectations about their future income depend not only on judgments about economic conditions but more on trends in future distribution systems," Gao Peiyong suggested. During the 15th Five-Year Plan period, more realistic analysis suited to China's reality is needed, and beyond short-term policy adjustments and stimulus, a path must be forged with reform and opening-up as the foundation to promote China's economic growth.
"Consumption is no longer just a 'function of income' but more a 'function of wealth accumulation,'" Gao Peiyong suggested. Current distribution reform needs to balance both "income distribution" and "wealth accumulation distribution" and must focus on the individual household level rather than intermediate links. Specifically, a coordinated system of primary distribution, redistribution, and third distribution should be constructed, while strengthening the regulatory role of taxation, social security, and transfer payments.
He noted that current macroeconomic policies are operating at "full capacity" around boosting consumption, with the most representative being the 300 billion yuan trade-in fiscal subsidy policy. "Don't underestimate it."
Trade-in programs have "renewed" consumption vitality. Ministry of Commerce data shows that as of mid-August this year, trade-in programs have driven related commodity sales exceeding 1.9 trillion yuan, benefiting over 320 million people.
Additionally, Mao Zhenhua mentioned that during the 15th Five-Year Plan period, there is a foundation for price recovery. Looking ahead to the 15th Five-Year Plan period, with people-centered new urbanization construction, effective capacity governance under "anti-involution" advancement, and continued momentum building of new growth drivers, China's domestic demand potential will be continuously released. Although it will be difficult to completely resolve structural supply-demand imbalances, staged mitigation is expected, providing support for stable price recovery.
**Policy Combinations and Reform Coordination to Stabilize Prices**
Regarding how to promote prices returning to reasonable ranges in the next phase and during the 15th Five-Year Plan period, experts have reached consensus: a framework of "clear targets + policy combinations + deepened reform" is needed, relying on both short-term policies to stabilize demand and prevent risks, and long-term reforms to break bottlenecks and strengthen foundations, forming synergy to break through difficulties.
In target setting, Mao Zhenhua proposed setting 2% year-on-year CPI growth as the long-term average inflation target for the 15th Five-Year Plan, shifting from a "control target" to a "striving target." If targets are not met, he suggests initiating compensation mechanisms. Compensation mechanisms need to comprehensively reference unemployment rates, tax revenue growth rates, enterprise and household income growth rates, and other micro-level "sentiment" indicators to ensure policy adjustments align with market realities.
Facing the challenge of insufficient effective demand, Mao Zhenhua believes traditional policy limitations must be broken through with "major measures" to stimulate domestic demand. At the short-term policy level, leveraging fiscal policy through "three approaches": first, providing consumption subsidies to residents, converting inefficient and ineffective infrastructure spending to livelihood consumption subsidies to boost household consumption capacity and confidence; second, providing special subsidies for affordable housing purchases to promote real estate market clearing from both supply and demand sides; third, launching debt replacement programs to resolve local government arrears to enterprises and alleviate corporate liquidity pressure.
In monetary policy, there remains room for reserve requirement ratio and interest rate cuts, with focus needed on key areas such as service consumption, agriculture-rural-farmer issues, and small and micro enterprises to reduce society-wide financing costs and maintain reasonable and ample liquidity.
"We need to comprehensively advance 'anti-involution' governance to resolve excess capacity and optimize supply structure," Mao Zhenhua emphasized. In his view, "anti-involution" has become a key measure for China's structural economic adjustment, requiring continued multi-pronged advancement of anti-involution governance. He also mentioned the need to resolutely prevent local governments from "rushing headlong" into developing "hot industries."
Regarding the next phase of economic conditions, he proposed that boosting final consumption demand is currently core, but with household sector leverage declining and precautionary savings tendencies rising, excessive reliance on household leveraging should be avoided in the short term. Focus should be on stabilizing enterprise sector leverage while moderately increasing government leverage ratios.
"If inflation is relatively low and doesn't reach expected levels, proactive fiscal policy can 'not scale back,' giving the market reassurance."
Long-term reform needs to resolve deep-seated contradictions, with deepening income distribution system reform serving as important support for price stabilization. Additionally, in market mechanism construction, Yang Ruilong, First-Class Professor at Renmin University of China and Joint Director of the Economic Research Institute, mentioned that "involution" essentially represents "missing market clearing mechanisms," with some enterprises and local governments "backstopping" inefficient capacity that squeezes market space. In the future, state-owned enterprise reform and local fiscal and tax reform need to be deepened to make prices serve as "signal lights" for supply-demand balance while optimizing business environments to genuinely protect the private economy.
He further emphasized that the core of price stabilization is consumption stabilization, the key to consumption stabilization is income stabilization, the foundation of income stabilization is employment stabilization, and employment stabilization relies on enterprise stabilization. Through "enterprise stabilization," chain effects of "employment stabilization," "income stabilization," and "consumption stabilization" can be achieved.