As September approaches a critical inflection point for China's inflation rate, the People's Bank of China (PBOC) is confronted with significant hurdles in its quest to stimulate the nation's economy towards faster growth. The National Bureau of Statistics (NBS) reported that the consumer price index (CPI) for mainland China experienced a modest year-on-year increase of 0.4% in September, falling markedly short of the PBOC's ambitious annual target of 3%.
Delving deeper into the data, it becomes apparent that the core inflation rate—which excludes certain volatile elements such as food and energy—only edged up by a meager 0.1% compared to the previous year. This lackluster performance is not an isolated incident; over the nine months leading up to September, China’s CPI recorded a mere 0.3% increase year-on-year, while the core inflation rate was also notably stagnant, showing only a 0.5% rise within the same timeframe.
These figures accentuate an alarming trend pointing towards near-deflation in 2024, which is often interpreted as an indicator of sluggish consumer demand, weak economic growth, and a property market that is in dire straits. For the average Chinese consumer, September brought a decline in residential rents year-on-year, juxtaposed with a slight increase in service prices by 0.2%.
Meanwhile, food prices, a crucial component in household expenditure, have witnessed a substantial rise of 3.3% compared to the previous year. In a concerning parallel, the producer price index (PPI)—which reflects the cost of goods at the factory gate—suffered a notable deflation of 2.8% in September, marking the 24th consecutive month of decline as per the NBS findings.
In response to these economic challenges, the government in Beijing has rolled out several fiscal stimulus initiatives, while the PBOC has taken steps to loosen monetary policy, including a slight reduction in key interest rates and providing liquidity to financial institutions such as banks and brokerage firms.
However, there has been criticism directed towards Beijing and the PBOC, accusing them of exercising caution in implementing necessary macroeconomic stimulus. Notable economist Steve Hanke, who is a professor of applied economics at Johns Hopkins University, expressed his views on social media platform 'X', previously known as Twitter, asserting that the PBOC has been inadequate in expanding the nation's money supply for 2024.
Hanke pointed out that the current growth rate of China’s money supply, as gauged by the M2 metric, stands at a languorous rate of approximately 6% annually. He advocates for this growth rate to be boosted to around 11% each year to reinvigorate the economy..