Consumer prices in China return to decline as recovery falters

BEIJING, Nov 9 (Reuters) – China’s consumer prices fell in October, as key measures of domestic demand pointed to weakness not seen since the pandemic, while factory-gate contraction deepened, casting doubt on the chances of a broad economic recovery.

Data from the National Bureau of Statistics on Thursday showed that the CPI fell by 0.2% in October compared to the previous year and fell by 0.1% compared to September.

These declines are less than the average annual decline of 0.1 percent and the flat reading on a monthly basis expected in a Reuters poll. Both indicators were last negative at the same time in November 2020 during the COVID-19 pandemic.

The headline figure was affected by a further decline in pork prices, down 30.1%, accelerating from a 22% decline in September, amid an oversupply of pigs and weak demand.

However, even core inflation, which excludes food and fuel prices, slowed to 0.6% in October from 0.8% in September, indicating China’s ongoing battle with deflationary forces and the risk of not meeting the key inflation target set by the government all year again, which It was set at about 3%.

Consumer prices slid into deflation in July and returned to positive territory in August but remained flat in September. Factories contraction continued for the thirteenth consecutive month in October.

Along with other economic indicators, data in the fourth quarter so far suggests that a true recovery in the world’s second-largest economy is still a ways off.

“The data shows that combating persistent deflation amid weak demand remains a challenge for Chinese policymakers,” said Bruce Pang, chief economist at Jones Lang LaSalle.

“An appropriate policy mix and more supportive measures are needed to prevent the economy from a downward slide in inflation expectations that could threaten business confidence and household spending.”

On a monthly basis, the CPI fell by 0.1%, compared to a rise of 0.2% in September.

The producer price index fell by 2.6% year-on-year compared to a 2.5% decline in September. Economists had expected a 2.7% decline in October.

The authorities have repeatedly downplayed the risks.

“There is no deflation in China and there will be no deflation in the future,” a statistics bureau official said last August.

Beijing is stepping up measures to support the broader economy, including issuing 1 trillion yuan ($137.43 billion) in sovereign bonds and a move to allow local governments to carry a portion of their 2024 bond quotas.

But the real estate crisis, domestic debt risks, and policy differences with the West are all complicating the recovery process.

Recent indicators for the economy have been mixed.

China’s imports rose unexpectedly in October while exports contracted at a faster pace. Meanwhile, the official PMI showed factory activity unexpectedly contracting and services activity slowing last month.

China also recorded its first-ever quarterly deficit in foreign direct investment, highlighting capital outflow pressures in the wake of “risk-cutting” steps taken by Western governments.

“We expect the Chinese economy to grow by 5.0% in 2023, in accordance with the target set by the authorities, followed by 4.0% growth in 2024 and 2025,” Moody’s said on Thursday.

“However, we see downside risks to China’s growth trend due to structural factors.”

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