China's Consumer Prices Show Modest Recovery Amid Ongoing Deflationary Pressures

In October 2025, China's consumer price index (CPI) rose by 0.2% year-on-year, marking a return to positive inflation after two months of decline. This increase contrasts with a 0.3% drop in September and surpasses economists' expectations of a 0.1% decrease. The producer price index (PPI), however, continued to reflect deflationary pressures, decreasing by 2.1% year-on-year, although this decline was less severe than the 2.3% drop recorded in September.

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The uptick in CPI is attributed to heightened demand during the National Day and Mid-Autumn Festival holidays, which boosted travel, food, and transport sectors. Core CPI, excluding volatile food and energy prices, increased by 1.2%, indicating underlying domestic price pressures. Conversely, the PPI remains negative due to overcapacity in heavy industries such as steel and coal mining, coupled with weak export demand and sluggish construction activity.

China CPI Turns Positive as PPI Deflation Eases in October

The Chinese government has implemented measures aimed at stabilizing prices and curbing excessive competition across various sectors. Analysts, including Xu Tianchen from the Economist Intelligence Unit, suggest that while the CPI's rebound indicates some effectiveness of supply-side policies, the overall demand remains weak. Zhiwei Zhang, president of Pinpoint Asset Management, cautions that it is premature to declare an end to deflationary dynamics, emphasizing the need for sustained demand-side policy enhancements.

Reuters

Despite the positive CPI figures, skepticism persists regarding the sustainability of this recovery. Critics argue that the modest inflation does not sufficiently address the broader economic challenges, including high youth unemployment and slowing economic growth. Policymakers have been cautious in deploying aggressive stimulus measures, opting instead for a steady approach to interest rates, which have remained unchanged for five months.

China CPI Turns Positive as PPI Deflation Eases in October

While the CPI data suggests a stabilization in consumer sentiment, some analysts warn that the underlying recovery appears fragile. The disparity between the positive CPI and negative PPI raises questions about the overall health of the economy. Furthermore, there is uncertainty regarding the potential impact of global trade dynamics and domestic consumption patterns on future inflation trends.

China CPI Turns Positive as PPI Deflation Eases in October

• “Demand remains weak but a rebound in CPI indicates that supply-side policies are having an effect, and the supply-demand balance in many industries is improving,” — Xu Tianchen, Senior Economist, Economist Intelligence Unit

Reuters

• “it is too early to conclude the deflation is over” — Zhiwei Zhang, President and Chief Economist, Pinpoint Asset Management

South China Morning Post

• “CPI inflation rose in October. It is a surprise to the market,” — Zhang Zhiwei, Chief Economist, Pinpoint Asset Management

South China Morning Post

China's economic landscape in October 2025 reflects a complex interplay of modest consumer price recovery against persistent producer price deflation. While recent data indicates some stabilization, the outlook remains cautious, with analysts emphasizing the need for robust demand-side policies to ensure sustainable growth. The government's focus on supporting consumption over the next five years may gradually yield results, but immediate challenges persist.

Reuters