China’s CPI showed a slowdown in September, according to data released by China’s National Bureau of Statistics on October 13. The Consumer Price Index (CPI) rose 0.4% year-over-year, below both the previous month and the market expectation of 0.6%.

Breaking down the details, food prices increased by 3.3% year-over-year, up 0.5 percentage points from the previous month, contributing 0.66 percentage points to the overall CPI growth. However, non-food prices shifted from a 0.2% year-over-year increase to a 0.2% decline. Energy prices dropped by 3.5% (previously -2.0%), while service prices rose by 0.2% (previously 0.5%), reflecting lower energy prices due to base effects and reduced demand for accommodation services following the summer season.

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Overall, domestic demand in China remains weak. Excluding food and energy, core CPI grew by only 0.1% year-over-year, down 0.2 percentage points from the previous month. Additionally, the Producer Price Index (PPI) fell by 2.8% year-over-year in September, a wider decline than the previous month’s 1 percentage point drop, indicating rising deflationary pressures.

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On the same day, China’s General Administration of Customs released September trade data. Exports grew 2.4% year-over-year, down from 8.7% in the previous month and below market expectations of 6%. Imports rose by 0.3%, lower than both the previous month’s 0.5% growth and the market forecast of 0.9%, continuing to reflect weak domestic demand and increased trade barriers from other countries.

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While China announced large-scale monetary easing policies in mid-September, specific implementation plans for accompanying fiscal measures have yet to be unveiled. Given the persistent weakness in demand and challenges to future export growth, China faces significant difficulty in achieving its 5% GDP growth target for the year.

Last week, Chinese stocks declined as the absence of new fiscal stimulus measures weighed on the market, with the CSI 300 Index dropping by 3.3%. In contrast, the U.S. S&P 500 Index continued to hit new highs, buoyed by gains across various sectors. In the bond market, easing concerns about the economy pushed the U.S 10-year Treasury yield back above 4%, while the spread between 10-year and 2-year Treasury yields widened to around 13 basis points. The U.S. Dollar Index also edged up slightly to approximately 103.

Key Economic Data Review for Last Week:

U.S. CPI:
The September CPI rose 2.4% year-over-year (previously 2.5%), slightly above market expectations of 2.3%, but still the lowest level since February 2021. This increase primarily reflected higher prices for apparel, medical services, and transportation services.

Meanwhile, rent inflation, which is closely watched by the Federal Reserve, rose 4.8% year-over-year (previously 5.0%), while owners’ equivalent rent increased 5.2% (previously 5.4%), both continuing their gradual decline.

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U.S. Michigan Consumer Sentiment Index:
The preliminary reading for the October University of Michigan Consumer Sentiment Index came in at 68.9, down 1.2 from September. The report showed that consumer optimism about the current economic situation was up 8% compared to the same period last year, although dissatisfaction with high prices remains.

Optimism about business prospects reached its highest level in six months, but confidence in personal finances, both current and future, showed slight declines. With the presidential election approaching, some consumers are finding it difficult to make long-term economic forecasts.

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Key Economic Data Review for This Week:

U.S. Retail Sales (10/17):
September employment data showed that the labor market remains balanced, while services PMI continued to expand, reflecting the resilience of the service sector in supporting U.S. consumption and employment. The market currently expects September retail sales to show a year-over-year decline to 1.8% (previously 2.1%) due to last year’s high base, but strong consumer resilience is likely to support a monthly increase of 0.3% (previously 0.1%).

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Eurozone Monetary Policy Meetings (10/17):
For the first time, the Eurozone’s September Harmonised Index of Consumer Prices (HICP) fell below the 2% target range. With the region’s economy weakening and several central bank officials expressing support for a rate cut, the market expects the European Central Bank to lower rates by 25 basis points in October, with a further 25 basis point cut anticipated in December.

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China GDP (10/18):
Recent monthly data for China’s industrial output, retail sales, and fixed asset investment have all continued to decline. The market expects China’s third-quarter GDP to grow by 4.6% (previously 4.7%) due to weak demand, making the 5% annual growth target increasingly challenging to achieve.

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The U.S. Consumer Price Index (CPI) continued to decline in September, according to data released by the U.S. Bureau of Labor Statistics on October 10. The year-over-year CPI growth rate was 2.4%, down 0.1% from the previous month. Although slightly above the market expectation of 2.3%, it remains the lowest level since February 2021. The month-over-month increase was 0.2%, unchanged from the previous month and slightly higher than the market forecast of 0.1%.

Core CPI rose by 3.3% year-over-year, marginally exceeding both the previous month’s figure and market expectations of 3.2%.

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The monthly increase was primarily driven by rising prices in apparel, medical services, and transportation services. On a positive note, the rent and owners’ equivalent rent, which have been key factors slowing the CPI decline, showed signs of easing. On a year-over-year basis, rent inflation grew by 4.8% (down from 5.0% in the prior month), while owners’ equivalent rent increased by 5.2% (down from 5.4%), both continuing their gradual deceleration.

(Source: BLS, TrendForce)

Additionally, the Bureau of Labor Statistics reported the latest weekly jobless claims. Initial claims reached 258,000, an increase of 33,000 from the previous week, while continued claims rose to 1,861,000, up by 42,000 from the prior month. Despite the rise in claims, the numbers remain within a healthy range, indicating that the labor market is still in balance.

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Following the release of this data, market expectations for Federal Reserve rate cuts remained unchanged, with projections for two cuts this year and four more in 2024.

The U.S. inflation continued to ease in August, as reported by the Bureau of Labor Statistics on September 11. The Consumer Price Index (CPI) increased by 2.5% year-on-year (previously 2.9%), with a monthly increase of 0.2% (unchanged from 0.2% in July). The core CPI, which excludes food and energy, remained steady with an annual increase of 3.2% (same as the previous 3.2%), and a monthly increase of 0.3% (up from 0.2%).

Breaking down the data, the decline in the annual CPI growth rate was largely driven by a reduction in energy prices, benefiting from last year’s high base effect. Energy prices fell 4% year-on-year (previously up 1.1%). However, core CPI, excluding food and energy, remained unchanged, primarily due to a rebound in housing services prices. The annual growth rate of housing services prices increased to 5.2% in August (up from 5.1%), with a monthly increase of 0.5% (up from 0.4%).

Housing prices have consistently been the largest impediment to the decline in core CPI. However, due to the recent slower pace of reduction, the market now anticipates an 85% probability of a 25-basis-point rate cut in September (up from 66% prior to the release of the CPI data). Moreover, the market expects a total of four rate cuts throughout 2024, with one in September, two in November, and one in December.

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China’s CPI recorded positive growth for the seventh consecutive month, rising by 0.6% year-on-year in August, up from 0.5% in the previous month, as reported by the National Bureau of Statistics on September 9. However, the CPI is still below market expectations of 0.7%.

This rise was mainly driven by continuous increases in food prices driven by high temperatures and heavy rainfall, which surged by 2.8% (previously 0%), contributing 0.51 percentage points to the overall CPI growth.

However, non-food prices fell from 0.7% in July to 0.4%, and core CPI, which excludes food and energy, rose by only 0.3%, down from 0.4% in the prior month. August’s PPI reflected similar trends, with China’s PPI declining by 1.8% year-on-year, widening from a 0.8% drop in July. This marks the 23rd consecutive month of contraction, highlighting weak domestic demand and increasing deflationary risks.

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