BEIJING (BLOOMBERG) - China's factory inflation moderated in November from a 26-year high, with the slowdown providing more room for policymakers to support the economy.
The producer price index rose 12.9 per cent from a year earlier, above economists' forecasts of a 12.1 per cent gain, data from the National Bureau of Statistics showed on Thursday (Dec 9). The consumer price index increased 2.3 per cent, the fastest pace since August 2020 but below the projected 2.5 per cent gain.
The slowdown is a sign that the government's efforts to tame soaring commodity prices and deal with power shortages over the past few months are having an effect. If the price pressures continue to abate, it may provide more room for the central bank to add stimulus.
"There's more space for monetary policy, as consumer inflation will likely stay mild in the first half of next year before rising further in the second half," said Mr Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.
Factory inflation will probably continue slowing in the coming months, while falling oil prices could balance out the impact of rebounding pork prices on consumer inflation, he said.
Consumer inflation sped up, with much of that pickup driven by more expensive food. Vegetable prices jumped 30.6 per cent in the month, although wholesale prices have started to come down. Meanwhile, pork prices were much lower than this time last year, dropping 32.7 per cent. Without that decline, consumer prices would have risen 3 per cent.
However, the cost of pork has started to rise again, with wholesale prices up almost 50 per cent from the low in October.
"As policies to stabilise prices and ensure supply have stepped up, the rapid surge in coal, metal and other energy and raw material prices has been initially contained, leading to a slowdown in PPI (producer price index)," NBS senior statistician Dong Lijuan said in a statement accompanying the release.
Core consumer price index, which excludes more volatile food and energy prices, rose 1.2 per cent, as sporadic Covid-19 outbreaks likely continue to weigh on services consumption.
The central bank acted to release 1.2 trillion yuan (S$258 billion) into the economy, announcing on Monday it would reduce most banks' reserve requirement ratio by 0.5 percentage point from next week. While the central bank said this was not the start of an easing cycle, financial markets are showing some expectation of further action.
The Communist Party's top leaders also indicated earlier this week that their focus for the coming year is stabilising macroeconomic conditions and signalled an easing of some property curbs next year, as a real estate downturn and sporadic virus outbreaks weigh on the economic outlook.