Key Points
- China’s consumer prices unexpectedly rose 0.2% in October after falling in previous months.
- The increase was driven by temporary holiday spending during the “Golden Week” holiday.
- Economists believe the underlying problem of deflation (falling prices) remains unresolved.
- Persistent deflation is a major risk to China’s economy, as it discourages spending and investment.
China’s consumer prices rose unexpectedly in October, boosted by holiday spending on travel, food, and transport. The consumer price index (CPI) increased by 0.2% from a year ago, according to data from the National Bureau of Statistics on Sunday. This was a surprise, as economists surveyed by Bloomberg had predicted a 0.1% drop.
Most economists believe this small uptick is just a temporary blip and not a sign of a real recovery. They point to the “Golden Week” holiday in October as the main driver of the spending.
Economists at Goldman Sachs noted the price increases likely reflect seasonal demand and that their “durability remains to be seen.” Bloomberg Economics was more blunt, stating the “holiday boost that will fade” and that “deflationary pressures remain entrenched.”
This small price rise comes after months of deflationary pressure, during which prices were actually falling. This is a big problem for China’s economy. When prices fall, people tend to delay purchases, hoping for even better deals later. This hurts businesses, makes debt heavier, and can lead to a downward spiral of weaker spending and less investment. In fact, the broadest measure of prices in China has been falling for over two years, the longest streak on record.
Beijing is trying to break this cycle. The government has launched a campaign to stop the intense price wars that have hit industries from electric cars to food delivery.
However, progress has been slow, as the government is worried about causing job losses or hurting economic growth. While China is likely to hit its 5% growth target for the year, falling prices mean the actual value of that growth (nominal GDP) has been much slower.
