Editor's note: Bruce Pang is the chief economist and head of research at JLL Greater China. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

China's consumer price index (CPI) has continued its trend of month-on-month growth since July. In September, the rise in international oil prices drove up domestic prices for refined oil products and industrial consumer goods, effectively supporting non-food prices. This also served to offset factors such as the deceleration in food price increases and a slowdown in consumption prices of related services as the peak season for summer travel came to an end.

In terms of year-on-year CPI performance, last year's high base effect and year-on-year drop in food prices were the primary factors shifting the CPI data from an upward trajectory towards flat growth. However, industries related to tourism during the summer vacation remain promising, evidenced by the year-on-year price increases in airfare at 14 percent, tourism at 12.3 percent, and hotel accommodations at 10.4 percent despite being slightly lower compared to August. Considering events like the Mid-Autumn Festival, National Day Golden Week, and year-end holidays, accommodation, dining, transportation, tourist services, and other related consumption activities are expected to stay active and continue supporting the year-on-year CPI growth.

The core CPI, which excludes food and energy prices, rose by 0.8 percent year on year, retaining the same rate of increase as August. This indicates that consumer demand is still in the early stages of recovery. To ensure sustained consumption and boost residents' spending capacity, it is crucial to form a virtuous cycle where strong macroeconomic fundamentals, stable employment, and income expectations work in harmony with a recovering consumer market, mutually reinforcing and bolstering each other.

The country's producer price index (PPI) increased by 0.4 percent month on month, which was 0.2 percent higher than the figure for August. It registered a year-on-year decrease of 2.5 percent, which was 0.5 percent less than the decline in August. This trend better demonstrates the ongoing improvement in market supply and demand dynamics and a balanced recovery. If the inventory cycle turns upward in the fourth quarter – entering a new phase of replenishment, coupled with recent domestic policies aimed at boosting demand – this will further contribute to a subsequent rise in commodity prices.

As these data show, China's trend toward economic recovery is becoming more evident, and there is no systemic or sustained deflationary pressure. Nevertheless, due to factors such as the base effect and external uncertainties, there may still be temporary and sporadic receding inflation and insufficient inflation in the short term. Particularly, the CPI is influenced significantly by the comparison base of the same period last year. However, as residents' willingness to consume gradually increases and their spending capacity improves, the year-on-year CPI is expected to return to positive growth. We will see further strengthening of the positive feedback loop between stronger endogenous drivers and the rekindling of effective social demand and rising urban and rural residents' incomes, improved consumption conditions, and stabilized confidence expectations.

Correspondingly, macroeconomic policies should continue to play an active role in expanding demand. Fiscal and monetary policies should effectively compensate for insufficient social demand, actively boost domestic demand and effective social demand, and leverage consumption as a fundamental driver of economic growth. Meanwhile, increasing residents' income should enhance consumption, and stimulating effective supply through end-user demand is crucial. Promoting price increases from a low level and maintaining prices at a reasonable level not only nurtures normal price growth based on a healthy and sustainable demand recovery but also ensures that price levels do not disrupt the economy's promising upward trend. This will be one of the vital tasks in macroeconomic policymaking in the fourth quarter.

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