- Chinese factory gate prices, or producer price inflation (PPI), down 2.3% in September
- This shows an improvement from lows over the summer as Beijing looks to tackle problems caused by ‘involution’
- What could this mean for investors?
James Flintoft, head of investment solutions at AJ Bell, comments:
“So much attention is focused on inflation figures in the UK, but looking farther afield may hold the key to price trends in 2026. China has been contending with ‘involution’, a destructive price race largely driven by heavy manufacturing investment intended to prop up its economy after the property market collapse.
“Involution describes the relentless competition among firms to slash prices and outdo rivals, which eats into profits and stifles innovation, leaving everyone working harder for ever-thinner margins. That dynamic is one reason behind China’s deflationary stretch in recent years as factory gate prices have fallen year on year since late 2022.
“Some improvement is underway. Today’s data showed September PPI down 2.3% – versus a 2.9% drop in August, and a trough of 3.6% falls in June and July – and Beijing’s efforts to curb cut-throat price wars are being noticed. This has had a cooling effect on global goods inflation in 2024 and 2025, visible in falling electric car prices and cheaper solar panels across Europe and the UK.
“Looking ahead, deflationary pressures from China may ease. Chinese authorities appear to have recognised the pitfalls of involution and are signalling that new investment will flow into more productive areas, such as infrastructure and higher-value sectors. Reduced overcapacity and less destructive price competition could help pull China out of deflation, with spillovers potentially shifting the global price landscape heading into 2026.
“For investors, China’s easing deflation could remove one of the few global disinflationary forces, suggesting that bond markets may not get much relief from inflationary pressures going forward. From an AJ Bell Investments perspective, the AJ Bell funds have been navigating bond market volatility in 2025 through the use of US TIPS (inflation-linked US Treasuries). Rising inflation uncertainty has seen investors snap up inflation-protected bonds to add assets that give a ‘real’ return, similar to how investors are increasingly turning to gold.”