China’s producer price index (PPI) – which reflects the prices that factories charge wholesalers for products – fell for the 14th straight month in November after falling by 3 per cent, year on year, compared to a 2.6 per cent drop in October.

On a month-on-month basis, the PPI dropped by 0.3 per cent after a flat reading in October.

The biggest declines in November were in energy and metal prices, said analysts at Capital Economics.

3. Core inflation remains unchanged

China’s core inflation, excluding food and fuel prices, remained at 0.6 per cent in November, unchanged from October.

Analysts at Capital Economics said low core goods inflation, which rebounded last month from zero per cent year on year to 0.2 per cent, reflected price cutting by manufacturers in a bid to defend export market share as the coronavirus pandemic boom in global goods demand petered out.

Service deflation, meanwhile, fell to a five-month low of 1 per cent from 1.2 per cent in October, which added to evidence of renewed weakness in the labour market, analysts at Capital Economics said.

4. Outlook

Analysts at Capital Economics said they expect Chinese inflation to stay low in the near term, but do not think it will enter a deflationary spiral.

Core inflation, though, is likely to rise in the first half of 2024, they added, with the recent step up in policy support likely to boost domestic demand and push up services inflation.

Food and energy price deflation is likely to alleviate due to shifting base effects, and they expect CPI inflation to average 1 per cent in 2024, up from 0.3 per cent so far this year.

“Deflationary pressure has heightened as domestic demand remains weak,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

“This highlights the importance of more supportive fiscal policy to boost domestic demand and avoid a further downward spiral in prices.” https://www.scmp.com/economy/economic-indicators/article/3244649/china-inflation-4-takeaways-novembers-data-deflationary-pressure-heightened