China’s consumer inflation waned last month, while factory gate deflation extended a record streak of negative readings, signaling policymakers might need to hit the gas again to ease deflationary pressures.
The consumer price index (CPI) rose by 1.3 percent last month from a year earlier, according to the Chinese National Bureau of Statistics, missing the 1.5 percent median estimate in a Bloomberg survey and down from 1.6 percent in September.
The producer-price index fell 5.9 percent, its 44th straight monthly decline.
The lingering deflation risks, along with weakening trade, open the door for additional stimulus as inflation remains about half the government’s target pace. The People’s Bank of China (PBOC) — which has cut interest rates six times in the past year — is seeking to stabilize the economy without fueling a renewed surge in debt.
“The risk of deflation has accentuated,” Australia & New Zealand Banking Group Ltd Hong Kong-based Greater China economist Liu Li-gang (劉利剛) said.
“This requires the PBOC to engage in more aggressive policy easing,” Liu added.
Chinese stocks halted a four-day rally after the data, with the Shanghai Composite Index losing 0.2 percent.
Food prices rose 1.9 percent from a year earlier, from 2.7 percent in September. Non-food prices climbed 0.9 percent. Prices of consumer goods increased 1 percent, while services increased 1.9 percent, the data showed.
The inflation reading follows a tepid trade report that suggested the world’s second-biggest economy is not likely to get a near-term boost from global demand. Overseas shipments dropped by 6.9 percent last month in US dollar terms, while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8 percent, leaving a record trade surplus of US$61.6 billion.
Consumer prices are to rise 2 percent next year, according to the median of economist estimates in a Bloomberg survey. All 31 of those polled projected inflation would remain positive.
China is not the only major economy battling low inflation. US consumers’ expectations for inflation three years ahead fell last month to the lowest level in records going back to June 2013, according to a monthly Federal Reserve Bank of New York survey released on Monday.
The Bank of Japan last month blamed the slide in oil prices for its decision to postpone its time frame for reaching a 2 percent inflation target for the second time this year, while the Bank of England last week forecast that consumer-price growth would remain below 1 percent — less than half its target — until the second half of next year.
In the eurozone, inflation has averaged 1.2 percent in the four years since Mario Draghi took the helm of the European Central Bank in November 2011, according to Bloomberg calculations.
Muted inflation gives the PBOC room for further easing. The central bank is to maintain stable policy, and create a neutral monetary and financial environment for economic restructuring, according to the third-quarter Monetary Policy Implementation Report it released on Friday last week.
The PBOC said the economy faces downward pressure and inflation is likely to be low.
“The moderation of CPI has definitely opened up room for the PBOC to ease further, but this year the effectiveness of monetary policy in boosting demand has been limited. So even if the central bank has room, it may not cut interest rates again until next year,” China Minzu Securities Co (中國民族證券) analyst Zhu Qibing (朱啟兵) said.
The PBOC cut the required reserve ratio for major banks to 17.5 percent last month. It is to make one more reduction by the end of this year, but leave both the lending and deposit interest rates at current levels through 2017, according to a Bloomberg survey.
The ratio of deposits banks must lock away is to be cut 1 percentage point by the end of the year, HSBC Holdings PLC economist Li Jing (李婧) wrote in a report published yesterday after the CPI release.
China’s economy grew 6.9 percent in the three months through September from a year earlier, the slowest quarterly increase since the start of 2009. For the full year, growth is set to be the slowest since 1990.
Top leaders have signaled that they will not tolerate a sharp slowdown in the coming years. Chinese President Xi Jinping (習近平) last week said that average annual growth should be no less than 6.5 percent in the next five years to realize the nation’s goal to double 2010 GDP and per capita income by 2020.
At the factory level, lingering deflation is raising real borrowing costs. Still, the drag from lower international commodity prices should start to drop out of the data in the months ahead, as it was in the fourth quarter of last year that oil prices fell sharply, Bloomberg Intelligence economists Tom Orlik and Fielding Chen (陳世淵) said.
“Firmer producer prices in the months ahead could add to the incentive for the central bank to stay on hold through the end of 2015,” they wrote in a note.
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