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While many central banks around the world are trying to cool inflation, China is grappling with falling prices this year.
The Consumer Price Index (CPI) dropped 0.5% in November from a year ago, the biggest fall since November 2020, according to data released by the National Bureau of Statistics on Saturday. It was worse than expected, as analysts polled by Reuters had predicted a 0.1% decrease.
The drop also marks an acceleration from October, when the CPI fell 0.2% from a year earlier, and has prompted calls for urgent action from Beijing to boost demand and prevent a downward spiral of prices.
The data come days after policymakers vowed to strengthen fiscal and monetary support to boost the flagging economy.
China has been fighting weak prices for most of this year due to a property market slump and subdued consumer confidence.
Consumer inflation has slowed since February and dropped to negative territory in July for the first time in more than two years. It returned to positive territory in August and was flat in September, but fell back below zero in October.
“China’s deflation situation is deepening with the triple whammy from domestic food prices, international oil price corrections and weak domestic demand,” analysts from Citi said in a Sunday report.
“Signs of price weakness are now spreading from goods to services,” they added.
Food prices were a major drag on the CPI, down 4.2% in November from a year earlier. In particular, pork prices plummeted 31.8%.
Gasoline prices declined after international oil prices hit their lowest level in months in November.
Services inflation also slowed. It was up 1% from a year ago last month, compared with a 1.2% increase in October.
The Producer Price Index (PPI), which is mainly driven by prices of commodities and raw materials, dropped 3% in November, down for 14 months in a row.
The worsening deflationary pressure has cast further doubt over China’s economic recovery.
“There is no time for policy hesitation to prevent a vicious loop between deflation, confidence and activities,” the Citi analysts said.
Late last month, Pan Gongsheng, the governor of the People’s Bank of China, said in Hong Kong that China would keep monetary policy “accommodative” to support the economy, and expected consumer prices to rise in the coming months.
On Friday, China’s top officials convened for a Politburo meeting and vowed to do more to expand domestic demand and spur consumer spending.
The Politburo meeting, along with the annual Central Economic Work Conference (CEWC) that is expected later this month, typically sets the tone for economic policy for the coming year.
Investors are awaiting for more details from the CEWC about economic policy for next year, the Citi analysts, adding that they expect “imminent” cuts to the reserve requirement ratio and policy rates.
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