Editor's note: Liu Chunsheng, a special commentator for CGTN, is an associate professor at the Beijing-based Central University of Finance and Economics. The article reflects the author's opinions and not necessarily the views of CGTN.

The recovery is concentrated in a few categories

After October's price data was released on Monday, China's consumer price index (CPI), a main gauge of inflation, rose 0.7% year-on-year and the core CPI rose 0.8%, with both growth rates easing. The figures remain positive, yet the tone is muted: This is not deflation, but neither is it a broad-based firming of demand.

What holds up the headline number is mainly energy and artificial intelligence (AI)-related electronics. The former tracks international oil prices; the latter is pulled up by demand for memory and computing power, with price gains concentrated and sizable. By contrast, food prices continue to fall, fresh vegetables, pork and other heavily weighted categories are notably weak, while ordinary industrial consumer goods and services stay largely flat. The result is a picture of "modest overall growth": A few categories surge, while most stand still or edge lower.

This is the structural character of prices. An index is a weighted average: High-weight categories set the direction, while volatile categories set the magnitude. Rising energy and digital products push the index up; weak food and general consumer goods drag it down. The two offset, and the remaining 0.7% conceals two facts: Prices in some industries are climbing fast, while pricing power in others is still contracting. Since January, the CPI has also used 2025 as its base year, with weights updated to the new consumption structure. The weight of energy and digital goods has grown, making structural increases more likely to register in the headline.

For ordinary people, the feeling follows what they buy most. Commuters notice dearer fuel; people buying phones or building computers notice pricier memory and machines; at the wet market, cheaper vegetables and meat are the daily, tangible relief. In the same month, different spending baskets produce different "inflation rates." The statistics are not distorted, only that everyone's weights differ. Aggregate indicators cannot answer why "my household doesn't feel it"; the answer lies in the structure.

A hot upstream and a cold downstream

Upstream tells another story. China's producer price index, which measures costs for goods at the factory gate, rose 5.7% year-on-year in October, and its gap with CPI is widening. Gains are concentrated in energy, chemicals, nonferrous metals and electronic equipment, while downstream prices for consumer goods still hover near zero. Upstream reaps the price gains; downstream absorbs the costs. This divergence says more than the CPI alone.

Why does transmission falter? Firstly, energy price increases take one to two quarters to reach midstream and downstream costs. Secondly, when end products cannot be sold dearer, firms can only absorb costs internally. Once profits are squeezed, investment and research and development spending contract, and the cycle jams. This also means rate cuts or loosening alone can hardly fix the current price problem: What is missing is not the cost of capital, but that the demand is willing to pay.

The macro figures confirm this. Profits of China's industrial firms above a designated size rose 15.5% in the first nine months, with gains concentrated in resources and equipment; over the same period, retail sales of consumer goods grew just 1.1%. Production is recovering faster than consumption, and price increases remain stuck upstream, failing to affect end-market prices and sales.

The gap in perceived prices is the weak spot of domestic demand

This is so-called K-shaped growth projected onto prices. The income and assets of some industries and some groups are recovering, while others remain under strain. Firms on the energy and technology chains gain from rising prices; firms in ordinary consumer goods and offline services struggle with low prices. Residents' perceptions naturally split into two tiers. Data carries no emotion, but it sharply illuminates the shape of the divergence. No matter how good the aggregate, it cannot hide that two groups feel the temperature differently.

So the "mild recovery" judgment can stand, but it does not mean domestic demand has turned strong. Core CPI below 1%, and easing for months, shows demand-driven price recovery has yet to appear. The bright spots in service consumption are mostly holiday and policy impulses, not sustained gains in purchasing power. Moves in gold and other assets reflect financial conditions, not consumer willingness. That people prefer to save does not mean they are unwilling to spend, but that they lack stable expectations for future income and asset prices.

The direction of policy is already clear and expanding domestic demand needs a more concrete push. The priority is to raise household incomes through stable jobs and stable expectations, and to strengthen social security and public services so that education, healthcare and elderly care no longer feed precautionary saving. Trade-in programs should advance alongside a broader and better range of services, shifting subsidies from stimulating purchases to improving the experience itself; and midstream and downstream firms must be left enough room to protect their profits.

Prices are a thermometer, not an engine. A reading of 0.7% can be read as mild recovery, or as deepening divergence. For the recovery to spread from a few categories to most industries, and to transmit from upstream to the terminal market, it ultimately depends on the money in people's pockets.

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