October CPI Data Review: Why Core Inflation Continues to Rise

Investment Highlights

Since the beginning of the year, the gap between core inflation and overall CPI has continued to widen, driven by anti-involution governance, fiscal support, and rising gold prices, which are releasing medium- to long-term benefits supporting the continued rebound of core inflation.

In October, the CPI year-on-year growth rate was 0.2%, and the month-on-month growth rate was 0.2%; the PPI year-on-year growth rate was -2.1%, with a month-on-month rebound to 0.1. Inflation in October maintained a steady rebound. The drag from food has lessened, and core service prices rose seasonally against expectations, reaching the highest level since March 2024 year-on-year. Anti-involution governance, fiscal efforts, and rising gold prices are the main drivers of the recent continuous rise in core inflation, but a medium- to long-term rebound still requires improvements in residents' consumption capacity and motivation, as well as the supply of high-quality consumption scenarios. The PPI slightly increased month-on-month in October, but the upward momentum of upstream raw material prices has weakened, awaiting price transmission to downstream.

CPI: Reduced Drag from Food, Increased Contribution from Services

The reduced drag from food is mainly due to the month-on-month decline being lower than the same period in 2024, with the base effect supporting the overall reading. In October, with continuous rainfall in the north and frequent cold air moving south in South China, the supply of goods from production areas tightened, and the prices of fresh fruits and vegetables did not enter the post-holiday slump as in previous years, but instead steadily rose amid the interplay of supply-demand imbalance and weather disturbances. Pork remains the main drag in food, as the pig cycle is still in the bottoming phase, with high inventory pressure on enterprises, the release of sow capacity, and sufficient supply of live pigs and pork, leading to further price declines. As temperatures drop, terminal demand may slowly recover, and pork prices are expected to fluctuate upward.

Core CPI rose seasonally against expectations to 0.2%, with a year-on-year increase to 1.2%. In terms of internal structure, "other goods and services" significantly exceeded seasonal expectations, mainly due to the contribution of gold jewelry prices: in October, international gold prices climbed to a historical high of $4,400 per ounce, driving gold jewelry prices to rise by 10.2% month-on-month (previous value 6.5%). Additionally, the National Day travel boosted tourism prices, which rose by 2.5% month-on-month (previous value -6.1%). Medical service prices have continued to rise seasonally since the beginning of the year, reflecting the background of deepening medical service price reforms across various regions, with prices of technology-intensive medical service projects being raised.

PPI: Awaiting Price Transmission to Downstream

Price increases are still mainly concentrated upstream: the price momentum in the mining industry has turned positive for three consecutive months, and prices in the black chain have also stopped falling and rebounded, but the momentum weakened in October: coal mining and washing industry rose by 1.6% month-on-month (previous value 2.5%), black metal mining and selection industry rose by 0.9% month-on-month (previous value 2.6%), and black metal smelting and rolling processing industry fell by 0.7% month-on-month (previous value 0.2%).

Awaiting price transmission to downstream. The upward momentum of upstream raw material prices weakened in October, and the price recovery speed of downstream processing industries has slightly slowed compared to upstream raw materials, but aside from some raw material processing industries, prices in most other industries have remained seasonally flat month-on-month, indicating that price governance under the background of anti-involution competition has shown initial results. Data on industrial enterprise profits in September also showed that the profit growth rate in some downstream consumer goods industries has improved The logic supporting the continued rebound of core inflation lies in medium- to long-term factors. Anti-involution governance, fiscal stimulus, and rising gold prices are the main reasons for the recent continuous increase in core CPI, while the medium- to long-term rebound logic is based on: the improvement of residents' consumption capacity, the enhancement of consumption motivation, and the supply of high-quality consumption scenarios. Risk Warning: The tail pressure in the real estate sector still exists, and the momentum for consumption recovery is below expectations.

Inflation Maintains Steady Rebound

Event: October CPI year-on-year growth rate 0.2%, month-on-month 0.2%; PPI year-on-year growth rate -2.1%, month-on-month rebounding to 0.1%.

Inflation in October maintains a steady rebound. The drag from food has eased, and core service prices have risen seasonally month-on-month, reaching the highest level since March 2024 year-on-year. Anti-involution governance, fiscal stimulus, and rising gold prices are the main drivers of the recent continuous rise in core inflation, but the medium- to long-term rebound still requires improvements in residents' consumption capacity and motivation, as well as the supply of high-quality consumption scenarios. PPI slightly increased month-on-month in October, but the upward momentum of upstream raw material prices has weakened, awaiting price transmission to downstream.

CPI—Easing Food Drag, Rising Service Contribution

October CPI year-on-year 0.2%, month-on-month rebounding to 0.2%. Analyzing the supporting factors, the drag from food has eased, and the contribution from services has increased: food prices (including pork) contributed -0.54% (previous value -0.83%), with pork prices contributing -0.29% (previous value -0.31%), and other food contributing -0.25% (previous value -0.51%); transportation and communication contributed -0.22% (previous value -0.29%), while core CPI contributed +0.96% (previous value +0.81%).

The easing of food drag is mainly due to the month-on-month decline being lower than the same period in 2024, with the base effect supporting the overall reading. In October, with continuous rainfall in the north and frequent cold air moving south in South China, the supply of goods from production areas tightened, and the prices of fresh fruits and vegetables did not enter the post-festival slump as in previous years, but instead steadily rose amid the interplay of supply-demand imbalance and weather disturbances. Pork remains the main drag in food, as the pork cycle is still in the bottoming phase, with high inventory pressure on enterprises, the release of sow capacity, and sufficient supply of live pigs and pork, leading to further price declines. As temperatures drop subsequently, terminal demand may slowly recover, and pork prices are expected to fluctuate upward.

Transportation and communication prices fell due to the drag from oil prices. Crude oil prices have fallen due to international input influences, with transportation fuel prices month-on-month at -0.8% (previous value -1.7%). Prices for transportation and communication tools have both fallen seasonally month-on-month Core CPI rose seasonally to 0.2% month-on-month (previous value 0.0%), and increased to 1.2% year-on-year. From an internal structure perspective, "other goods and services" significantly exceeded seasonal expectations, mainly due to the contribution of gold jewelry prices: in October, international gold prices climbed to a historical high of $4,400 per ounce, driving gold jewelry prices up 10.2% month-on-month (previous value 6.5%). Additionally, travel during the National Day holiday led to a 2.5% month-on-month increase in tourism prices (previous value -6.1%). Medical service prices have continued to rise seasonally since the beginning of the year, reflecting the background of deepening medical service price reforms across various regions, resulting in price increases for medical technology-intensive service projects.

PPI - Waiting for Price Transmission to Spread Downstream

In October, PPI decreased by 2.1% year-on-year and rebounded to 0.1% month-on-month. Price increases are still mainly concentrated upstream: the price momentum in the mining industry has turned positive for three consecutive months, and the prices in the black chain have also stopped falling and started to rise, but the momentum weakened in October: coal mining and washing industry increased by 1.6% month-on-month (previous value 2.5%), black metal mining and selection industry increased by 0.9% month-on-month (previous value 2.6%), and black metal smelting and rolling processing industry decreased by 0.7% month-on-month (previous value 0.2%).

Waiting for price transmission to spread downstream. The price rebound momentum of upstream raw materials weakened in October, and the price recovery speed of downstream processing industries has slightly slowed compared to upstream raw materials. However, except for some raw material processing industries, prices in most other industries have remained seasonally flat month-on-month, indicating that the price governance under the background of anti-involution competition has achieved initial results. Data on industrial enterprise profits in September also show that the profit growth rate of some downstream consumer goods industries has improved.

Why Core Inflation Continues to Rise

Among the inflation readings in October, the most notable is the accelerated rise of core CPI. Since the beginning of the year, the gap between core inflation and overall CPI year-on-year has continued to widen, with the contribution of service items to inflation continuously increasing. This is mainly due to the following three reasons: first, under anti-involution governance, the price increases of upstream raw materials have stabilized the prices of downstream consumer goods, such as in the automotive industry; second, proactive fiscal policies have boosted demand recovery, leading to rapid price increases in related consumer goods, such as in the home appliance industry, with its CPI rebound independent of PPI; third, the impact of imported inflation, such as the surge in gold prices driving continuous significant increases in gold jewelry prices The logic supporting the continued rise of core inflation lies in medium to long-term factors: 1) The improvement in residents' consumption capacity requires the completion of balance sheet repair, optimization of the income distribution mechanism, especially the manifestation of the wealth effect driven by the capital market; 2) The improvement in residents' consumption motivation, and the enhancement of the social security system can significantly increase residents' marginal propensity to consume, shifting consumption motivation from "defensive" to "expenditure"; 3) The supply of high-quality consumption scenarios, the "14th Five-Year Plan" suggests that "expanding the supply of high-quality consumer goods and services" is a key support for the strategy to expand domestic demand, and new consumption formats can effectively drive the upgrade of mid-to-high-end consumption.

Article authors: Han Chaohui, Zhang Jianyu, et al., Source: Liang Zhonghua Macro Research, Original title: "Why Core Inflation Continues to Rise - Commentary on October 2025 Price Data (Guotai Junan Macro Han Chaohui, Zhang Jianyu, Liang Zhonghua)"

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