China is slipping further into deflation. Consumer prices in November recorded an annual contraction of 0.5% (from -0.2% in October) compared to estimates the day before of -0.1%, the largest since November 2020 due to the slowdown in food products (-4.2% from -4% in the previous month) and the further decline in pork prices.
Producer prices, reported the National Statistics Office, fell by 3% per year, much more than -2.6% in October and market forecasts of -2.8: this is the 14th monthly decline consecutive and the largest since August with an economy in more difficult conditions.
Deflation in China accelerated in November, highlighting the difficulties of the world’s second largest economy in terms of reviving domestic demand. The data came in the wake of President Xi Jinping’s admission that the post-pandemic recovery is “still at a critical stage”, amid “growing adverse factors in the international political and economic environment”.
Dong Lijuan, an official at the National Bureau of Statistics, remarked in a note that the marked decline in October was linked to “downward fluctuations in energy and food prices.” Deflation, however, poses a threat to the overall economy as consumers tend to postpone purchases in the hope of further reductions. Furthermore, the lack of demand can trigger a chain effect between production cuts and layoffs or hiring freezes by companies, having to deal with the management of existing inventories to the detriment of productivity. As for producer prices, Dong attributed the drop to “a rebound in international oil prices which weakened demand for some industrial goods”.
China’s economy grew by 4.9% in the third quarter of 2023, just below the government’s “around 5%” target for the full year. Xi, who on Thursday chaired a thematic meeting of the Communist Party’s Politburo dedicated to “economic work”, called for measures to revive the recovery, underlining the need to “focus on accelerating the construction of a modern industrial system, on the expansion of internal demand and on the prevention and defusing of risks”. The president also called for strengthening “self-reliance” in key fields of science and technology and accelerating efforts to “build a new development framework,” in the state media report.