China is moving towards deflation
Beijing: The persisting deflationary trend in consumer prices is worrisome, China’s consumer prices have once again dipped into decline, signaling ongoing struggles in domestic demand and raising concerns about the country’s economic recovery.
According to data from the National Bureau of Statistics, the consumer price index (CPI) dropped 0.2% in October compared to the same period last year, a sharper decline than expected.
The decline was largely attributed to a further slump in pork prices, which fell by 30.1% due to oversupply and weak demand. Even core inflation, which excludes food and fuel prices, slowed to 0.6% in October, highlighting China’s battle with disinflationary forces. This raises concerns that the government’s full-year headline inflation target of around 3% may be missed.
The persisting deflationary trend in consumer prices is worrisome, as it indicates a broader-based economic recovery may be challenging for China, the world’s second-largest economy. In fact, factory-gate deflation continued for the 13th consecutive month in October, further pointing to a lack of sustained improvement in economic conditions.
Economists suggest that Chinese policymakers will need to implement an appropriate policy mix and more supportive measures to prevent a downward drift in inflation expectations, which could negatively impact business confidence and household spending.
On the whole, economic indicators in the fourth quarter paint a picture of an elusive economic recovery for China. While imports unexpectedly grew in October, exports contracted at a faster pace.
Additionally, the official purchasing managers’ index revealed contraction in factory activity and a slowdown in services activity last month. China also recorded its first-ever quarterly deficit in foreign direct investment, indicating a capital outflow pressure following Western governments’ risk reduction measures.
These factors, alongside issues such as a property crisis, local debt risks, and policy divergence with the West, further complicate the country’s recovery process.
