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Deflationary pressures in China increased in September, with weaker-than-expected consumer and factory prices, underscoring calls for Beijing to deliver a bigger package of measures to boost the economy.
The softer data comes as China’s volatile markets await more detailed information on Beijing’s stimulus plans, following a Finance Ministry press conference on Saturday that promised more spending but provided few new figures.
China’s consumer price index rose 0.4 percent year on year in September, the National Bureau of Statistics said Sunday, weaker than a Bloomberg poll of analysts that forecast a 0.6 percent gain, and down from 0.6 percent in August.
The producer price index fell 2.8 percent year-on-year, compared with analysts’ forecasts of a 2.6 percent decline. The decline accelerated from 1.8 percent in August and was the steepest decline in six months.
Goldman Sachs said consumer inflation was supported by rising food prices, which were affected by adverse weather conditions and seasonal demand ahead of Golden Week, which started on October 1.
The weak inflation data shows how China’s economy is suffering from deflationary pressures due to a deep real estate crisis that has hit household demand.
They anticipate government data due to be released this week, which is expected to paint a picture of a two-speed economy, with strong trade data Friday set to be offset by weak third-quarter gross domestic product data.
Economists expect China’s third-quarter GDP to grow less than Beijing’s official target of 5 percent on an annual basis.
Analysts warned that if growth slows further and China’s export engine begins to encounter more obstacles, such as protectionism from key trading partners, policymakers will need to take more action.
“Like the 2-speed model [can] don’t continue, policy makers [will] We need to escalate policy stimulus,” Larry Hu, an economist at Macquarie, said in a note.
After months of incremental measures, the central bank announced stronger monetary stimulus in late September ahead of the National Day holiday, sparking a rally in China’s long-dying stock markets.
Investors are waiting for Beijing to provide detailed fiscal plans to support monetary stimulus, but have been disappointed by the lack of detail in subsequent government announcements.
Analysts said that while markets want the government to present a more determined front on stimulus, Beijing will try to avoid flooding the market with credit. Past stimulus efforts are blamed for the creation of a real estate bubble.
Attention shifts to the next leadership meeting of the National People’s Congress, China’s parliament, which technically must approve any additional spending plans. A meeting is expected in the coming weeks.
The statistics agency said weaker producer prices were driven by the ferrous metal smelting and rolling industry, which fell 11 percent year on year, and by the gasoline, coal and other fuel processing industries, which fell 9.4 percent. The factory price of consumer goods also fell by 1.3 percent.
In terms of consumer prices, the agency said the price of “new energy cars” – electric vehicles – and cars with traditional engines fell by 6.9 percent and 6.1 percent respectively.
The Chinese car market is characterized by fierce competition and overcapacity, causing many manufacturers to increase their cheap exports.
