China’s producer prices fall, consumer inflation slows on soft demand

  • PPI falls for a second month
  • Nov PPI -1.3% y/y vs -1.3% y/y in October
  • Nov CPI +1.6% y/y vs. +2.1% y/y in October

BEIJING, Dec 9 (Reuters) – Ex-factory prices in China fell year on year for a second month in November as consumer inflation slowed, indicating weak activity and weak demand in an economy dragged down by severe pandemic controls.

Analysts said they expected the government to keep interest rates low and take steps to boost confidence.

The producer price index (PPI) fell 1.3% from a year earlier, unchanged from the annual contraction seen in October, according to data from the National Bureau of Statistics (NBS) released on Friday. . That was slower than a 1.4% drop predicted in a Reuters poll.

The consumer price index (CPI) for November rose at its slowest pace in eight months, rising 1.6% from a year earlier, which was less than the annual increase of 2, 1% observed in October, but consistent with a Reuters poll.

“These data suggest that economic momentum (continues) to weaken,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

A high-level political meeting on Tuesday, a gathering of the ruling Communist Party’s Politburo, stressed that in 2023 the government would focus on stabilizing growth, promoting domestic demand and opening up to the outside world.

Zhang said that although the government has eased pandemic controls over the past week, it will take further steps to stimulate the economy.

“The Politburo meeting… identified weak confidence as a major problem for the economy,” he said. “I expect the government to do more to bolster market and household confidence. The rapid pace of reopening indicates the government’s sense of urgency.”

Growth in the world’s second-largest economy has faltered this year, largely affected by intransigent COVID-19 restrictions, as global demand has also weakened.

Producer price deflation and more subdued consumer price inflation in November accompanied record COVID-19 infections and related headwinds that disrupted production and dampened mobility.

Although markets applauded the change in pandemic policy, economists say it will likely slow growth in the coming months as infections rise, leading to an economic rebound only later in 2023.

Reuters Charts

Output deflation was led by the steel industry, where prices fell 18.7%.

The slowdown in consumer price growth is partly explained by food markets.

Food prices increased by 3.7% compared to the previous year, while the increase observed in October was 7.0%. Within the food category, pork was a moderating factor in inflation: it was 34.4% more expensive in November than in the same month last year, but in October the annual increase had been by 51.8%.

Annual core inflation, which excludes volatility in food and energy prices, was just 0.6% in November, unchanged from October

“Overall inflationary pressure remains benign in China, and we expect CPI inflation to be around 1.6% for 2023, down from 2.0% in 2022. Given this, monetary policy will remain accommodative coming year,” said Hao Zhou, chief economist at Guotai Junan Group.

China’s central bank has held its benchmark one-year prime rate at 3.65% since August. It expects consumer inflation to remain subdued next year.

Reporting by Liangping Gao and Liz Lee; Editing by Edmund Klamann and Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

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