China’s Consumer Inflation Hits Five-Month Low Amid Slowing Economy

China’s Consumer Inflation Hits Five-Month Low Amid Slowing Economy

China’s economy continues to face challenges as consumer inflation dropped to a five-month low in November, reflecting sluggish domestic demand despite government stimulus measures. The National Bureau of Statistics reported a 0.2% year-on-year rise in consumer prices, missing analysts’ expectations of a 0.5% increase.

Key Highlights

• Consumer Price Index (CPI): Inflation rose 0.2% in November, lower than the expected 0.5% increase. Core inflation, which excludes food and energy prices, inched up to 0.3%.
• Producer Price Index (PPI): Wholesale inflation fell 2.5% year-on-year in November, marking the 26th consecutive month of decline. This was slightly better than the predicted 2.8% drop. Key declines were seen in ferrous metals (-7.1%), fuel and power (-6.5%), and chemical raw materials (-5%).
• Food Prices: Pork and fresh vegetable prices surged by 13.7% and 10%, respectively, reflecting volatility in agricultural markets.

Economic Context

The figures underline persistent deflationary pressures in China’s wholesale markets and near-zero inflation in retail markets, highlighting weak domestic demand. Despite Beijing’s recent stimulus measures—including interest rate cuts, property market support, and efforts to boost bank lending—consumers and manufacturers remain cautious.

Economic experts suggest that deflation may persist in China through 2025. Becky Liu of Standard Chartered Bank noted parallels to previous trade wars, where PPI inflation turned negative, and Goldman Sachs predicts near-zero CPI inflation next year.

Signs of Recovery Amid Challenges

While inflation remains subdued, other parts of the economy have shown resilience:

• Retail Sales: October’s retail sales grew stronger than expected.
• Manufacturing Activity: Expanded for two consecutive months in November.

Outlook and Risks

Fitch Ratings recently downgraded its 2025 Chinese GDP growth forecast to 4.3% from 4.5%, citing protectionist U.S. trade policies and a lingering property market downturn as key risks. China’s Central Economic Work Conference this week is expected to outline new goals and stimulus measures for 2025, which may address these economic challenges.

Conclusion

China’s slowing inflation reflects the delicate balance between stimulus measures and ongoing economic headwinds. As policymakers convene to address these challenges, the nation’s economic trajectory for 2025 remains uncertain but pivotal for global markets.