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China Inflation October 2023

China: Consumer prices record biggest fall since July in October; producer prices decline

Consumer prices decreased 0.2% in annual terms in October, contrasting September’s flat reading and undershooting market expectations. October’s result represented the largest fall in consumer prices since July, and was a sign of subdued domestic demand. Lower prices for transport and certain foodstuffs—such as pork, amid amply hog supply—weighed on the headline reading.

Annual average inflation fell to 0.6% in October (September: 0.8%). Finally, consumer prices fell 0.10% from the previous month in October, contrasting September’s 0.20% increase and also below market expectations. October’s result marked the weakest reading since June.

Meanwhile, producer prices fell 2.6% on an annual basis in October, which was a sharper fall than September’s 2.5% decrease.

While consumer price inflation is forecast to return next year, price pressures will remain subdued by global standards. Moreover, persistently low price pressures could spur further monetary easing ahead.

On the monetary policy implications of the recent data, United Overseas Bank’s Ho Woei Chen said:

“The weak inflation and growth backdrop lends support to the case for further monetary policy easing. We keep our call for a further 10 bps cut to the 1Y LPR and 20 bps cut to the 5Y LPR in 4Q23 to bring the rates to 3.35% and 4.00% respectively by year-end. A further cut to banks’ reserve requirement ratio is also possible to provide additional liquidity.”

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