China’s Consumer Inflation slowed to a five-month low in November, highlighting persistent economic challenges despite government efforts to boost recovery. According to data from the National Bureau of Statistics released Monday, the consumer price index (CPI) rose just 0.2% year-on-year, falling short of analysts’ expectations of 0.5%. This marks a decline from October’s inflation rate of 0.3%.
Core inflation, which excludes volatile food and energy prices, edged up slightly to 0.3% in November from 0.2% in the previous month.
Food Prices Push Inflation
On an annual basis, food prices were a significant driver of inflation, with pork prices rising 13.7% and fresh vegetables up by 10%. However, this was not enough to boost overall inflation significantly, indicating weak demand in other sectors of the economy.
Producer Price Deflation Persists
China’s producer price index (PPI), which measures wholesale inflation, declined for the 26th consecutive month in November, dropping 2.5% year-on-year. This was a smaller decline than the 2.8% forecasted by analysts.
Among industrial inputs, the prices of ferrous metal materials fell the most, with a 7.1% decrease, followed by a 6.5% drop in fuel and power and a 5% decline in chemical raw materials.
Experts suggest that the entrenched PPI deflation reflects a mismatch between supply and demand, as accumulated inventories of manufacturing inputs and finished goods continue to grow. This imbalance has exerted downward pressure on prices, further dampening wholesale inflation.
Challenges Despite Stimulus Measures
China’s Consumer Inflation, along with persistent PPI deflation, underscore weak domestic demand and structural challenges in China’s economy. This comes despite a series of government stimulus measures since September, including interest rate cuts, support for stock and property markets, and efforts to encourage bank lending.
Analysts predict that deflationary trends are likely to continue. Based on historical trends during periods of trade tension, such as the ongoing US-China trade war, inflation—particularly PPI inflation—tends to dip into negative territory. Experts anticipate that China’s producer price index will remain in negative territory through at least 2025.
Goldman Sachs has also projected near-zero CPI growth in China for 2024, reflecting the ongoing struggles in boosting domestic consumption and mitigating deflationary pressures.
Signs of Recovery in Some Sectors
Despite China’s Consumer Inflation challenges, certain sectors of the economy have shown signs of improvement. October retail sales recorded stronger-than-expected growth, and manufacturing activity expanded for two consecutive months. These developments indicate that parts of the economy are stabilizing, though broader challenges persist.
Leadership and Policy Outlook
China’s top leaders are set to meet at the Central Economic Work Conference this week to discuss economic goals and stimulus measures for 2025. The meeting is expected to address key concerns, including deflationary pressures, weak domestic demand, and ongoing trade tensions.
In a separate development, Fitch Ratings revised its forecast for China’s GDP growth in 2025 to 4.3%, down from 4.5%, and lowered its 2026 projection to 4.0% from 4.3%. The agency attributed the downward revision to potential protectionist trade policies from the United States and risks of an extended downturn in China’s real estate sector.
Fitch noted tentative signs of stabilization in the property market but warned that it remains a key risk to the country’s economic outlook.
Upcoming Data Releases
China’s Consumer Inflation is scheduled to release its November trade data on Tuesday, followed by retail sales figures next Monday. These reports are expected to provide further insights into the state of the world’s second-largest economy as it grapples with slowing growth and persistent inflationary challenges.
