Deflation hits China again

Staff reporter and Reuters

China's economy fell back into deflation amid a plunge in pork and factory prices, indicating a tough recovery amid weakening domestic demand.

The consumer price index dropped 0.2 percent in October from a year earlier and slipped 0.1 percent from September, data from the National Bureau of Statistics showed yesterday.

The declines undershot the median 0.1 percent year-on-year fall. Both indicators were last negative at the same time in November 2020 during the Covid-19 pandemic.

The NBS blamed the rising supply and retreating demand after the Golden Week holiday.

ING economist Rob Carnell argued that China is not experiencing deflation as the index also includes other prices such as real and financial assets and money wages decline, and attributed the CPI contraction to low pork prices.

The headline figure was dragged by a further slump in pork prices, down 30.1 percent, speeding up from a 22 percent slide in September, amid an oversupply of pigs and weak demand.

However, even core inflation, which excludes food and fuel prices, slowed to 0.6 percent in October from 0.8 percent in September, pointing to China's continued battle with disinflationary forces and the risk of again missing the government's full-year headline inflation target, set at around 3 percent.

"The data shows combating persistent disinflation amid weak demand remains a challenge for Chinese policymakers," said Bruce Pang, chief economist at Jones Lang Lasalle.

The producer price index fell 2.6 percent year-on-year against a 2.5 percent drop in September. NBS said the PPI slid on rising prices of oil and non-ferrous metals.

Beijing has been ramping up measures to support the broader economy, including 1 trillion yuan (HK$1.07 trillion) in sovereign bond issuance and a move to allow local governments to frontload part of their 2024 bond quotas.

Without mentioning the forecast about China's economic growth this year, UBS lowers its estimates for next year to 4.4 percent, as the investment bank expects the property market would fall another 10 percent and keep consumer confidence subdued.