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Andrew Mullen

1. Vegetable, fruit prices ease upwards pressure on inflation
China’s consumer price index (CPI) fell short of expectations and rose by 0.2 per cent year on year in November, slowing from a 0.3 per cent increase in October to hit a five-month low.
Analysts attributed the modest decline mainly to further normalisation of fresh vegetable and fruits prices in the wake of supply disruptions in prior months.
“Headline CPI fell, but this was mainly driven by easing upwards pressure on food prices,” said Gabriel Ng, an assistant economist at Capital Economics as food costs rose by 1 per cent year on year, down from an increase of 2.9 per cent in October.
NBS chief statistician Dong Lijuan attributed the changes to high temperatures and declining travel demand.
On a month-on-month basis, China’s CPI in November fell by 0.6 per cent following a fall of 0.3 per cent in October.


2. Factory-gate price slowdown eases
The slowdown in China’s producer price index (PPI) eased last month, beating expectations and dropping by 2.5 per cent in November, compared with a fall of 2.9 per cent in October.
The gauge, though, fell in year-on-year terms for a 26th consecutive month.
“Deflationary pressures in both upstream and downstream alleviated somewhat,” said analysts at Goldman Sachs.
In month-on-month terms, factory-gate prices rose by 0.1 per cent, representing the first increase in six months.
Dong attributed the slower PPI decline to a series of existing policies and incremental policies working together, as well as a recovery in domestic demand for industrial products.


3. Core inflation edges up
China’s core inflation, which excludes volatile food and energy prices, increased by 0.3 per cent year on year in November, following an increase of 0.2 per cent in October.
Core inflation edging up suggested that the cyclical improvement in economic activity on the back of stronger fiscal spending pushed up underlying inflation, according to Ng at Capital Economics.
4. ‘Recovery not strong enough to boost inflation’
Ng at Capital Economics said core inflation edging up and PPI deflation easing suggested that China’s stimulus measures were supporting underlying price pressures “to some degree”.
But he said he still expects overcapacity to keep inflation low into 2025 and beyond.
Analysts at Nomura said they expect CPI inflation to dip further to 0.1 per cent year on year in December, with a flat sequential reading.
All told, stimulus seems to be putting a floor beneath underlying inflation, at least for now
Gabriel Ng, Capital Economics
“CPI inflation surprised on the downside. The deflationary pressure in the economy is persistent. Economic activities stabilised recently but the recovery is not strong enough to boost inflation yet,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
“It requires a much stronger fiscal push to get China out of the deflationary environment.”
Ng at Capital Economics predicted CPI inflation to average at just 0.5 per cent in 2025 and 2026.
“All told, stimulus seems to be putting a floor beneath underlying inflation, at least for now,” he added.
“But with the boost from stimulus likely to be short-lived and the underlying causes behind the imbalance between supply and demand not being adequately addressed, we don’t see much upside to inflation further ahead.”


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