China’s consumer prices fall at their fastest pace in 3 years, factory gate deflation worsens

  • CPI for November -0.5% y/y vs. -0.2% in October
  • CPI for November -0.5% m/m vs. -0.1% in October
  • Producer Price Index for November -3.0% y/y vs. -2.6% in October

BEIJING (Reuters) – China’s consumer prices fell at the fastest pace in three years in November as factory door contraction deepened, indicating growing deflationary pressures as weak domestic demand casts doubt on the economic recovery.

Data from the National Bureau of Statistics on Saturday showed that the consumer price index fell by 0.5% compared to the previous year and compared to October.

This is higher than the average forecast in a Reuters poll, which indicated a decline of 0.1 percent on an annual and monthly basis. The year-on-year decline in the CPI was the largest since November 2020.

These figures add to recent mixed trade data and manufacturing surveys that have kept calls alive for more policy support to support growth.

Xu Tianchen, chief economist at the Economist Intelligence Unit, said the data would be worrying for policymakers and pointed to three main factors behind it: falling global energy prices, a fading winter travel boom, and a chronic supply glut.

“Downward pressure will continue to rise in 2024 as developers and local governments continue to reduce debt and as global growth is expected to slow,” Xu said.

Annual core inflation, excluding food and fuel prices, was 0.6%, the same level as October.

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Bruce Pang, chief economist at Jones Lang LaSalle, said the weak core CPI reading was a warning about the ongoing slowdown in demand, which should be a policy priority for China if it wants to achieve more sustainable and balanced growth.

Although consumer prices in the world’s second-largest economy have been teetering on the brink of deflation in recent months, Chinese central bank governor Pan Zongsheng said last week that inflation is expected to be “heading higher.”

The producer price index fell by 3.0% year-on-year versus a 2.6% decline in October, marking the 14th consecutive month of decline and the fastest since August. Economists had expected a 2.8% decline in November.

China’s economy has faced several headwinds this year, including rising local government debt, a faltering housing market, and tepid demand at home and abroad. Chinese consumers in particular have been tightening their financial constraints, fearing uncertainties surrounding an elusive economic recovery.

On Tuesday, Moody’s issued a downgrade warning for China’s credit rating, saying the costs of rescuing local governments and state-owned enterprises and controlling the real estate crisis will weigh on the economy.

The Chinese Ministry of Finance described the decision as disappointing, saying that the economy will rebound and that risks are under control.

The Politburo, a top decision-making body of the ruling Communist Party, was quoted by state media on Friday as saying that authorities would stimulate domestic demand and boost economic recovery in 2024.

Markets await further government stimulus at the Central Economic Work Conference, which will hold its annual agenda later this month.

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(Reporting by Elaine Chang, Ella Cao and Ryan Wu; Preparing by Muhammad for the Arabic Bulletin; Preparing by Muhammad for the Arabic Bulletin) Editing by William Mallard and Edmund Claman

Our standards: Thomson Reuters Trust Principles.

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