China’s inflation cooled in October amid falling food prices

CPI inflation moderated in October

China’s CPI inflation fell to 0.7% year-on-year, down from 0.9% and slightly below expectations (market: 0.8%, ING: 0.8%). This brings the year-to-date inflation to 0.9% YoY.

Food was the main drag on inflation, with prices falling to a 13-month low of -2.9% YoY. The main culprits were fresh vegetables (-16.9%), pork (-8.6%), and fresh fruit (-3.8%) prices. The drag from pork prices has eased in recent months, but a sharp sequential decline in vegetable prices has largely offset it.

By comparison, non-food inflation was unchanged at 1.5% YoY on the month. We continue to see a strong boost from transportation fuels (20.2%) amid higher oil prices, and communication appliances (16.1%) due to more expensive tech components. Other categories such as healthcare (2.4%), Education, Culture, and Entertainment (1.5%), and clothing (1.1%) generally saw modest positive inflation.

Cutting through the noise, core inflation of 0.8% YoY edged down to a 9-month low, but it has stayed within a relatively narrow range of 0.8-1.2% year to date.

PPI inflation rose to 5.7% YoY in October, extending its climb to fresh cycle highs, as we saw an outsized boost from mining and excavation (27.9%) and raw material (11.6%) prices. By industry, coal mining (36.6%) and oil and gas extraction (35.0%) saw the biggest boosts. If higher producer prices hold, these costs should be passed on to consumers. We think inflation will remain low but positive heading into 2027.

Inflation cooled slightly amid falling food prices

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