China's Economy Reports Consumer Deflation For The First Time In 11 Years

China's official consumer price index (CPI) fell to minus 0.5 per cent in November from a year earlier - down from 0.5 per cent growth in October The decline in China's producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, slowed to minus 1.5 per cent in November from a year earlier
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China's Economy Reports Consumer Deflation For The First Time In 11 Years

China's consumer inflation entered negative territory in November for this first time since October 2009, official data showed on Wednesday.

China's official consumer price index (CPI) fell to minus 0.5 per cent in November from a year earlier, from 0.5 per cent growth in October, according to the National Bureau of Statistics (NBS). This was the lowest since it also reached minus 0.5 per cent in October 2009.

This was below the median expectations of a Bloomberg survey of analysts, which forecast a fall to 0.0 per cent.

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The fall was led by a 2.2 per cent decline in the price of food, which included the price of pork falling by 12.5 per cent. The price of eggs also fell 17.1 per cent.

"Headline consumer price inflation turned negative for the first time since October 2009 last month. But this was almost entirely driven by improvements in pork supply and isn't evidence of faltering demand. To the contrary, broader price pressures are starting to pick up on the back of the improvement in economic activity," said Julian Evans-Pritchard, senior China economist at Capital Economics.

"Consumer price inflation fell from plus 0.5 per cent year on year in October to minus 0.5 per cent last month (both the Bloomberg consensus and our forecast were 0.0 per cent). Most of the decline was the result of a drop in food price inflation. Pork prices fell 6.5 per cent month on month thanks to a strong rebound in pig stocks in recent months, while base effects from the surge in pork prices a year ago due to African swine fever meant the contraction in the year on year growth rate deepened from minus 2.8 per cent to minus 12.5 per cent. Non-food inflation also declined due to lower energy prices, but only marginally, from 0.0 per cent year on year to minus 0.1 per cent."

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China set a CPI target of around 3.5 per cent for 2020, compared with 3.0 per cent last year.

"From a year-on-year perspective, CPI fell by 0.5 per cent due to the high comparison base in the same period last year. Among them, the price of food turned from a 2.2 per cent increase last month to a decrease of 2.0 per cent, which contributed to the drop of CPI by about 0.44 percentage points, which was the main reason for the CPI to turn to falling from rising," said Dong Lijuan, a senior NBS statistician.

Meanwhile, the decline in China's producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, slowed to minus 1.5 per cent in November from a year earlier, compared with the 2.1 per cent fall in October.

This was above the median expectations of the Bloomberg survey of analysts for a drop of 1.8 per cent.

China's core inflation rate, excluding food and energy, stood at 0.5 per cent in November, unchanged from October.

China's overall economy has continued its recovery from the impact of the coronavirus, with growth in the third quarter accelerating to 4.9 per cent from a year earlier, up from 3.2 per cent in the second quarter, after a 6.8 per cent contraction in the first quarter.

China is expected to be the only Group of 20 country to record positive growth this year, with the International Monetary Fund projecting growth of 1.9 per cent this year, followed by a further acceleration to 8.2 per cent in 2021.

Last month, China's exports surged at the fastest pace in almost three years, resulting in the biggest monthly export haul in the country's history, according to data released by its customs agency on Monday.

Exports grew by 21.1 per cent from a year earlier, from 11.4 per cent in October and well above the consensus result of a survey of analysts conducted by Bloomberg, which had predicted just 12 per cent growth.

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