BEIJING – China’s consumer prices fell at the steepest pace in three years while producer costs dropped even further into negative territory, underscoring the challenges facing economic recovery.
The consumer price index (CPI) fell 0.5 per cent in November from a year earlier, the National Statistics Bureau said in a statement on Dec 9.
That is the biggest drop since November 2020, and is more than the 0.2 per cent drop projected by economists in a Bloomberg survey.
Producer prices declined 3 per cent, compared with a forecast of a 2.8 per cent fall. Factory-gate costs have been mired in deflation territory for 14 consecutive months.
China has been struggling with falling prices for much of the year, contrasting with many other parts of the world where central banks are focused on taming inflation instead.
Bloomberg Economics expects deflationary risks to persist into 2024, as there are not enough catalysts to counter the housing slump, which has suppressed demand and prices.
“The continuous drop in CPI data may exaggerate the risk of deflation in China,” said Mr Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.
Demand remains sluggish, he added, “which should be a policy priority for China to deliver more sustainable and balanced growth”.
Deflation is dangerous for China because it can lead to a downward spiral of economic activity.
Consumers may hold off purchases on expectations that prices will keep falling, further weighing on overall consumption. Businesses might lower production and investment due to uncertain future demand.
Deflation can also make monetary policies to stimulate the economy less effective, as declining prices lower corporate income and make it more difficult for companies to service their debts.
The central bank has sought to downplay the risks of deflation in 2023, with an adviser to the People’s Bank of China saying in November that those pressures are “temporary”.
Beijing recently turned to fiscal policy to spur domestic demand, unexpectedly increasing its budget deficit and encouraging banks to help local governments refinance debt at lower interest rates to help increase their spending capacity.
There are indications that fiscal support will strengthen in the coming year to help the recovery: China’s top leaders on Dec 8 announced such policies will be stepped up “appropriately” and emphasised the importance of economic “progress”, suggesting the growth goal in 2024 may be ambitious. BLOOMBERG
