China's primary measure of consumer prices showed signs of weakening in November, raising concerns that the country's leading economy is recovering sluggishly from the pandemic, impacted by downturns in its industrial and real estate sectors. The consumer price index (CPI) for mainland China recorded a slight year-on-year increase of 0.2% in November.
However, it marked a decrease of 0.6% compared to October, as reported by the National Bureau of Statistics (NBS).Moreover, the core CPI, excluding specific food and energy costs, increased by 0.3% year-on-year but also fell by 0.6% from October. "China's CPI inflation unexpectedly fell to a five-month low," highlighted ING Think, a branch of the Dutch investment firm.
"The unexpectedly weak November data further substantiates our perspective that there is substantial scope for easing monetary policy in the coming months." The People's Bank of China (PBOC) has set an annual inflation goal of approximately 3% for the CPI. Nonetheless, signs of potential deflation are emerging, according to ING Think.
"November's figures certainly raise the likelihood that we might witness several months of negative year-on-year growth in CPI if food prices remain softer than anticipated, while non-food prices persist in demonstrating deflationary tendencies," remarked the research entity. In recent months, Beijing has introduced various fiscal stimulus measures and bond initiatives designed to enhance domestic consumption and support the region's largest economy.Additionally, the PBOC has moderately decreased interest rates and reserve requirements in 2024; however, critics argue that further stimulus is necessary.
"Market discussions have revolved around the likelihood of an imminent cut to the reserve requirement ratio (RRR), which is certainly a possibility. Yet, the inflation statistics indicate that there is capacity to combine an RRR reduction with a further interest rate cut as well. We anticipate that there will be 30 basis points of rate cuts and 100 basis points of RRR reductions by the end of 2025," noted ING Think.
Generally, the RRR pertains to the cash that banks are mandated to maintain versus the amount of outstanding loans. A reduction in the RRR enables banks to enhance lending capabilities relative to cash reserves.Since the pandemic, China's economy has faced challenges, primarily attributed to a faltering property sector and subdued industrial demand.
Several of China's leading residential real estate developers, including China Evergrande, have faced bankruptcy due to dwindling demand and declining property values.In terms of industrial demand, China's producer price index (PPI) saw a year-on-year drop of 2.5% in November, continuing a trend of annual declines dating back to October 2022, according to the NBS..