China’s consumer inflation rate remains lower than projected as trade war concerns weigh on economy

The National Bureau of Statistics reported that China’s November consumer inflation slowed down than projected, rising by only 0.2% compared to last year. Analysts polled by Reuters expected November prices to increase by 0.5% instead of the 0.3% October increase.

China’s producer price index dipped for the 26th consecutive month, with November’s drop of 2.5% lesser than the 2.8% predicted by the analysts in the Reuters poll. The decline in factory prices was also lower compared to the same period last year. Core inflation, which excluded volatile fuel and food prices, climbed 0.3% in November from October’s 0.2%. 

Year over year, pork and fresh vegetable prices rose by 13.7% and 10%, respectively. The prices of ferrous metal materials fell by 7.1%, leading to a decline in the purchaser price index of industrial producers. Chemical raw materials plunged 5%, while fuel and power saw a 6.5% drop.

Experts believe China’s deflation will continue amid trade wars

China consumer prices climb less than expected as economy slows amid trade war worries https://t.co/rC1SLLfQVd

— CNBC (@CNBC) December 9, 2024

Erica Tay, the director of macro research at Maybank, said that China’s PPI deflation still seemed ‘quite entrenched’ although it had narrowed slightly. She told CNBC that accumulated producer inputs and finished goods inventories were sizable and grew from month to month. 

According to the National Bureau of Statistics (NBS) report, persistent near-zero retail inflation showed that China’s economy struggled with low domestic demand as wholesale prices remained deflationary. Domestic demand remained sluggish despite Beijing’s series of stimulus efforts since September, which included interest rate cuts, support for stock and property markets, and efforts to incentivize bank lending. 

“We believe deflation will continue in China, especially based on the previous experience during trade wars.”

~ Becky Liu, Head of China macro strategy at Standard Chartered Bank

Liu said that PPI inflation typically fell to negative territory during trade wars, referencing the ongoing U.S.-China trade war. She pointed out that the situation was no different, adding that China’s producer price index inflation was likely to remain negative the following year.

Goldman Sachs predicts that China’s near-zero CPI figures will continue into 2025

The investment bank’s analysts similarly projected that China’s near-zero consumer price index figures would persist next year. The analysts, however, noted that some parts of the economy showed signs of recovery. China reported strong retail sales growth in October, beating expectations from Reuters analysts. In November, the second-largest economy in the world also showed expansion in manufacturing activities for two months in a row, according to Goldman Sachs.

According to CNBC, top Chinese leaders are expected to meet at the Central Economic Work Conference starting December 11th to discuss 2025’s stimulus measures and economic goals. 

On December 9th, Fitch Ratings reduced their forecast of China’s 2025 GDP growth from 4.5% to 4.3%. The credit rating agency adjusted its September projections for 2026 growth downwards from 4.3% to 4%. Brian Coulton, Fitch Ratings Chief Economist, assumed that the U.S. trade policies towards China would take a sharp ‘projectionist turn’ for 2025 and 2026. He noted that an extended decline in the property market posed a critical risk to the agency’s forecast, although there were ‘tentative signs of stabilization’.

Notably, China will report its November trade data and retail sales on December 10th and December 16th, respectively.

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