China’s economy returned to deflation last month on falling pork prices as policymakers struggle to reignite domestic demand amid an unfolding property crisis since the end of strict pandemic controls this year. and then, according to the FT.
The consumer price index fell 0.2 percent year-on-year in October, data from the Office for National Statistics showed on Thursday, compared with a 0.1 percent drop expected in a Reuters poll of analysts. The Consumer Price Index remained unchanged in September.
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Producer prices fell for a 13th straight month, falling 2.6% year-on-year (after a 2.5% contraction in September) and against some economists’ forecast of 2.7%.
The Statistical Service announced that livestock and meat sales prices fell by 17.9%, due to a 30.1% decrease in pork prices. Prices of non-food products increased by 0.7%.
Chinese market reaction was muted on Thursday, with the CSI 300 index that includes Shanghai and Shenzhen stocks unchanged and the renminbi down 0.1 percent against the dollar after the data was released.
Mixed signs of recovery
China’s economy has shown mixed signs of recovery in recent months, leading economists to debate whether it will meet the government’s official target of 5 percent GDP growth this year, the slowest in decades. Prices fell into negative territory in July, before returning to an upward trend in the following months.
Notably, the IMF this week “raised” its forecast for China’s GDP growth to 5.4%, citing stronger support from policymakers, who have eased monetary policy and restrictions on property markets and mortgage loans, with the aim of stabilizing the Real Estate market.
Analysts attributed the inflation picture to low consumer confidence, adding that falling pork prices exacerbated the trend in October. Pork futures traded on China’s Dalian Commodity Exchange have fallen about 15% this month.
Goldman Sachs said in an analyst note that China’s headline CPI should rise gradually in the coming months, although “persistent pork price deflation is likely to slow the pace.”
Rob Carnell, an economist at ING, disagreed that China is suffering from deflation, which he defined as a decline not only in consumer prices, but also in the prices of “real and financial assets and wages.”
Other indicators released recently have painted a mixed picture of the economic recovery. China’s exports fell 6.4% in dollar terms in October on a year-over-year basis and for the sixth straight month (a Reuters poll of economists had expected a 3% drop). Also, manufacturing activity contracted in October.
One positive sign from the trade data was China’s imports, which expanded year-on-year for the first time since February, rising 3%.
Economists argue that the government needs to do more to boost domestic consumption and revive waning demand in the economy.