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China slipped into deflation in November, increasing pressure on Communist Party officials to do more to restore consumer confidence at a major economic meeting this month.
China’s consumer price index rose 0.2% year-on-year, hitting a five-month low, lower than the 0.5% rise expected by analysts polled by Reuters. CPI increased by 0.3% year-on-year in October. From a month-on-month perspective, prices fell by 0.6% from October to November.
China’s producer price index, which measures the price of goods sold by Chinese manufacturers, fell 2.5% year-on-year, while analysts predicted a 2.8% drop and a 2.9% drop in October, continuing a two-month decline.
China’s economy has been plagued by deflationary pressures for months due to a property slump, prompting the government to announce monetary stimulus measures in September and fiscal measures mainly targeting local government debt in November.
The Communist Party of China is expected to hold one of its most important annual economic policy meetings, the Central Economic Work Conference, in the coming days, with analysts eagerly awaiting any signs of a more coordinated push to revive household spending.
“China’s economy continues to face deflation, underscoring the inadequacy of stimulus measures to date in restoring private sector confidence, reviving domestic demand and getting growth back on track,”
Cornell University professor Eswar Prasad said.
He said the work session provided the government with an opportunity to “propose a broader package of targeted fiscal stimulus and reform measures” to boost growth and reduce the risk of “deeply entrenched deflationary pressures”.
Beijing’s stimulus measures over the past few months have included monetary measures to boost the stock market, lower interest rates for mortgage holders and easing restrictions on home purchases.
The central government also announced a 100,000 yuan ($1.4 trillion) debt swap program aimed at helping local governments make up for missed wages and supplier payments.
But a growing number of Chinese economists and academics are calling for greater efforts to boost household spending beyond existing government programs, which focus on subsidizing consumers to upgrade home appliances or buy new cars.
Some hope the Central Economic Work Conference will focus on these issues, although the high-level leadership meeting is more likely to signal policy direction rather than include detailed announcements.
Goldman Sachs analysts said: “We expect policymakers to show increasing concern about growth headwinds and signal further stimulus measures to boost domestic demand and stabilize growth, while paying more attention to consumption, risk containment and high-tech manufacturing. “
The investment bank said the fall in inflation in November was mainly due to food prices stabilizing after supply disruptions in previous months.
