China’s Consumer Prices and Factory-Gate Deflation Deepen


China’s consumer prices dropped 0.5% year-on-year and month-on-month in November, marking the steepest fall in three years. Meanwhile, factory-gate deflation deepened, posing challenges to the economic recovery.

Consumer Prices Drop Sharply

In November, China’s consumer prices fell by 0.5% both from a year earlier and compared with October. This decline, the steepest since November 2020, exceeded the median forecasts in a Reuters poll.

Factors Behind the Decline

Economist Xu Tianchen attributed the alarming data to several factors, including falling global energy prices, the fading of the winter travel boom, and a chronic supply glut. Year-on-year core inflation, excluding food and fuel prices, remained stagnant at 0.6%.

Warnings About Persistently Sluggish Demand

Chief economist Bruce Pang highlighted the weak core CPI reading as a warning sign of persistently sluggish demand. He emphasized the need for addressing this issue as a top policy priority for China to achieve sustainable and balanced growth.

Factory-Gate Deflation Deepens

The producer price index (PPI) fell by 3.0% year-on-year in November, marking the 14th consecutive month of decline. This was the quickest decline since August and exceeded economists’ predictions.

Challenges for China’s Economy

China’s economy has faced various challenges including mounting local government debt, a struggling housing market, and subdued domestic and international demand. Moody’s issued a downgrade warning on China’s credit rating, citing concerns over the costs of bailing out local governments and controlling the property crisis.

Policy Response and Market Expectations

In response to the economic challenges, China’s top decision-making body, the Politburo, vowed to spur domestic demand and enhance economic recovery in 2024. Furthermore, markets are anticipating more government stimulus at the upcoming ‘Central Economic Work Conference’.