China's Consumer Prices: Sluggish Growth Despite Stimulus

China's consumer prices rose at their slowest pace in four months in October, despite the government's efforts to boost domestic demand through stimulus measures. The consumer price index (CPI) increased by 0.3% year-on-year, down from 0.4% in September, indicating persistent challenges in stimulating consumer spending. This article explores the underlying causes of this slowdown and potential remedies to address the issue.

The slowdown in CPI growth can be attributed to several factors. Supply chain disruptions and global economic uncertainties have exacerbated challenges in boosting domestic demand. The rise of e-commerce and online shopping has led to a decrease in demand for physical retail stores, contributing to the slowdown in CPI growth. Additionally, the increasing popularity of services such as streaming and on-demand entertainment has led to a decrease in demand for traditional goods, further contributing to the slowdown in CPI growth. Furthermore, the decline in demand for goods and services can be attributed to a decrease in consumer confidence, driven by economic uncertainties and the impact of the COVID-19 pandemic on employment and incomes.

To address these issues, China must focus on raising household incomes and driving consumption motivation through targeted policy measures. Tax reforms, such as raising the personal income tax threshold and lowering tax rates for middle-income earners, can directly benefit middle and lower-income earners, increasing their disposable income and encouraging spending. Additionally, interest rate cuts, including a 50 basis points reduction in existing mortgage rates, can ease the interest burden on households and stimulate demand. However, the overall impact of these policy adjustments on the CPI growth slowdown is likely to be modest.
Demographic shifts, particularly the aging population and changing family structures, have also significantly influenced the demand for consumer goods and services, impacting CPI growth. According to the National Bureau of Statistics, the population aged 65 and above reached 200 million in 2021, accounting for 14.2% of the total population. This aging population has led to a decline in the labor force and an increase in healthcare and elderly care services demand, which are typically low-income elastic. Meanwhile, the one-child policy has resulted in a smaller working-age population, reducing the overall demand for goods and services. Additionally, the rise in single-person households has increased the demand for single-portion products and convenience services, further reshaping consumer spending patterns.

In conclusion, the slowdown in China's consumer prices, despite stimulus measures, highlights the need for targeted policy measures to boost consumer spending and address the underlying issues in the Chinese economy. Supply chain disruptions, global economic uncertainties, demographic shifts, and changes in consumer behavior and preferences are contributing to the sluggish growth in CPI. To address these challenges, China must focus on raising household incomes, driving consumption motivation, and implementing targeted fiscal measures to support the real estate sector and clean up the financial system. By doing so, China can stabilize inflation and promote sustainable economic growth.