People shop for vegetables at a supermarket in Beijing, on Nov. 9.WANG ZHAO/AFP/Getty Images
China’s consumer prices swung lower in October, as key gauges of domestic demand pointed to weakness not seen since the pandemic, while factory-gate deflation deepened, casting doubts over the chances of a broad-based economic recovery.
The Consumer Price Index (CPI) dropped 0.2 per cent in October from a year earlier and slipped 0.1 per cent from September, data from the National Bureau of Statistics (NBS) showed on Thursday.
The declines undershot the median 0.1-per-cent year-on-year fall and flat month-on-month reading predicted in a Reuters poll. Both indicators were last negative at the same time in November, 2020, during the COVID-19 pandemic.
The headline figure was dragged by a further slump in pork prices, down 30.1 per cent, speeding up from a 22-per-cent slide in September, amid an oversupply of pigs and weak demand.
However, even core inflation, which excludes food and fuel prices, slowed to 0.6 per cent in October from 0.8 per cent in September, pointing to China’s continued battle with disinflationary forces and the risk of again missing the government’s full-year headline inflation target, set at around 3 per cent.
Consumer prices slipped into deflation in July and returned to positive territory in August but were flat in September. Factory deflation persisted for the 13th straight month in October.
Combined with other economic indicators, the data in the fourth quarter so far suggest a meaningful recovery in the world’s second-largest economy remains elusive.
“The data [show] combatting persistent disinflation amid weak demand remains a challenge for Chinese policy makers,” said Bruce Pang, chief economist at Jones Lang Lasalle.
“An appropriate policy mix and more supportive measures are needed to prevent the economy from a downward drift in inflation expectations that could threaten business confidence and household spending.”
Month-on-month, CPI fell 0.1 per cent, compared with a 0.2-per-cent gain in September.
The Producer Price Index (PPI) fell 2.6 per cent year-on-year against a 2.5-per-cent drop in September. Economists had predicted a 2.7-per-cent fall in October.
Authorities have repeatedly downplayed the risks.
“There is no deflation in China and there will be no deflation in the future,” said a statistics bureau official in August.
Beijing has been ramping up measures to support the broader economy, including 1-trillion yuan ($192-billion) in sovereign bond issuance and a move to allow local governments to front-load part of their 2024 bond quotas.
But a property crisis, local debt risks and policy divergence with the West all complicate the recovery process.
Recent indicators of the economy have been mixed.
China’s imports unexpectedly grew in October while exports contracted at a quicker pace. Meanwhile, the official purchasing managers’ index showed factory activity unexpectedly contracting and services activity slowing last month.
China also recorded its first-ever quarterly deficit in foreign direct investment (FDI), underlining capital outflow pressure following Western governments’ “de-risking” moves.
“We expect China’s economy to grow by 5.0 per cent in 2023, in accordance with the target set by authorities, followed by 4.0-per-cent growth in 2024 and 2025,” said Moody’s on Thursday.
“However, we see downside risks to China’s trend growth on account of structural factors.”