China's consumer prices returned to positive territory in October after spending most of 2025 in deflation. According to CNBC, the consumer price index rose 0.2 percent year-on-year. The reading exceeded analyst expectations of flat growth. Data from the National Bureau of Statistics was released Sunday.

The October figure represents a recovery from September's 0.3 percent decline. Holiday season demand during National Day and Mid-Autumn Festival helped drive consumer spending. Dong Lijuna, a senior statistician at the bureau, attributed the improvement to consumption policies and holiday effects.

Producer prices tell a different story. The producer price index fell 2.1 percent year-on-year in October. This extends a decline that has persisted for three consecutive years. Factory gate prices have remained in deflation since October 2022.

Economic Challenges Remain

The modest consumer price recovery does not eliminate deeper economic concerns. South China Morning Post reports that the near-zero inflation figure points to persistent deflationary pressures. Weak domestic demand continues to affect the economy.

Zhang Zhiwei, chief economist at Pinpoint Asset Management, cautioned against premature optimism. He stated it remains too early to conclude that deflation has ended. Trade uncertainties and weak domestic consumption compound the problem.

China's GDP deflator has remained negative for more than two years. This represents the longest deflationary streak since records began in 1992. Beijing lowered its official 2025 inflation target to around 2 percent.

Policy Response and Broader Implications

Chinese authorities have attempted various measures to combat deflation throughout 2025. The US-China Business Council notes that household spending accounts for just 44.5 percent of GDP. This falls well below the 60 to 70 percent levels seen in most OECD countries.

The government doubled subsidies for consumer trade-in programs to 300 billion yuan this year. These initiatives target big-ticket items including smartphones and home appliances. However, economists question whether such measures address the fundamental problem of weak income growth.

Real estate sector troubles continue to weigh on consumer confidence. The property market downturn has eroded household wealth and dampened spending. Labor market weakness adds to the challenges facing policymakers.

Global Context and Future Outlook

China's deflationary pressures occur as major economies worldwide manage different inflation dynamics. Brookings Institution analysis suggests President Xi Jinping has been cautious about aggressive stimulus. Beijing appears to prioritize long-term structural reforms over short-term consumption boosts.

Trade tensions with the United States add uncertainty to China's economic outlook. Export growth has provided some support, but this may prove temporary. Many businesses frontloaded shipments ahead of potential US tariff increases.

Economists expect China to maintain its 5 percent growth target for 2025. Achieving this goal will likely require more aggressive monetary and fiscal policies. The central bank has room to further ease interest rates given subdued inflation.

The October data suggests some stabilization in China's price dynamics. Whether this represents a turning point or temporary relief remains to be seen. Most analysts agree that sustained recovery requires addressing weak consumer confidence and income growth.

Further Reading

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