China’s Consumer Price Index (CPI) and Producer Price Index (PPI) showed a “double-deflation” in November. Due to high base and food prices, CPI turned negative in November for the first time since 2009, while PPI continued to stay in negative territory, which was called “rare” by the media. Analysts said the CPI and PPI were both negative, indicating that China’s economy is clearly deflationary, but also indicates that the economic recovery is weak.
On Wednesday (Dec. 9), the National Bureau of Statistics of the Communist Party of China (NBSC) announced that the consumer price index (CPI) fell 0.5% year-on-year in November, below the Reuters median estimate of zero and unchanged from the low in October 2009; the producer price index (PPI) fell 1.5% year-on-year in November, slightly higher than the Reuters median estimate of a 1.8% decline.
The Communist Party’s Bureau of Statistics also announced that the CPI fell 0.6 percent in November from a year earlier, compared with a 0.2 percent drop in Reuters’ median estimate; the PPI rose 0.5 percent from a year earlier; food prices in the CPI fell 2 percent in November from a year earlier, while non-food prices fell 0.1 percent in November from a year earlier. In the first 11 months of 2020, the CPI rose 2.7% and the PPI fell 2% year-over-year.
Reuters reported on December 9 that China’s CPI and PPI data in November showed a rare “double deflation”, and quoted analysts as saying that the CPI was mainly driven by the fall in food prices, especially pork prices, coupled with the impact of the Chinese Communist Party virus epidemic on the service sector, resulting in a sharp turn down in November CPI year-on-year; PPI remained negative, showing a clear deflationary trend, and also indicates a weak economic recovery.
China’s CPI has fallen to negative year-on-year for the first time since the global financial crisis,” said Hao Zhou, senior Asia economist at Deutsche Bank. The question that concerns the market is whether the CCP central bank is likely to slow down the policy normalization process given the extremely low inflation rate.
In response, Zhou Hao argues, “It seems unlikely at this point, as Chinese policymakers have increased deleveraging and started to tighten real estate.”
According to Zhang Yi, chief economist of China Overseas Shengrong, the weight ratio of CPI determines that domestic demand, especially consumer demand, has a great influence on it, and the continuous decline of CPI reflects two problems, one is that weak consumer demand, especially food and beverage demand, is an important feature of China’s economy; the other is that with the increase in the number of sows that can reproduce, pork prices will enter a rapid downward channel. Changes in supply and demand have resulted in a low CPI, which, from a trend perspective, is unlikely to enter a sustained upswing unless there is a massive retaliatory consumer rebound in the Chinese New Year.
Shen Jianguang, vice president of Jingdong Group and chief economist of Jingdong Digital Technology, said in an article on December 9 that November inflation data showed that CPI fell 0.5% year-on-year, down 1 percentage point from the previous month; PPI fell 1.5% year-on-year, narrowing by 0.6 percentage points from the previous month. Overall, CPI dragged by pork prices from up to down, non-food CPI for the first time in more than a decade to fall into the negative range, China’s domestic deflationary pressures increased.
Food prices were -2.4% q-o-q and -2% y-o-y in November. On the month-over-month basis, pork prices continued to fall by 6.5% due to the ongoing recovery of hog production, while prices of fresh vegetables and eggs fell by 5.7% and 1.6% respectively due to abundant supply. Year-on-year, due to the high base in the same period in 2019, pork prices dropped sharply from -2.8% to -12.5%, affecting the CPI by about 0.6 percentage points year-on-year, which was the main reason for the sharp decline in the CPI.
Shen Jianguang analysis, non-food CPI year-on-year for the first time since 2009 fell to the negative range, deflationary pressures increased. Non-food prices fell to -0.1% on a year-over-year basis, with the latter falling into negative territory for the first time since November 2009. On a year-over-year basis, off-season travel was reduced, and prices for airline tickets, travel and hotel accommodations declined more markedly; various other items also fell short of their average levels over the past decade. The slump in non-food prices reflects the fact that the recent improvement in domestic demand is still not clearly transmitted to price indicators, and that deflationary pressures in China are more pronounced than expected.
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