Deflation in China accelerated last month, official data showed on Saturday, underlining the difficulties the world’s second-largest economy faces in reviving slowing demand.
The consumer price index (CPI), the main gauge of inflation, fell 0.5 percent year-on-year following a decline of 0.2 percent in October, China’s National Bureau of Statistics (NBS) data show.
NBS official Dong Lijuan (董莉娟) said in a statement that the decline was linked to “downward fluctuations in the prices of energy and food.”
Photo: EPA-EFE
The so-called core CPI, which strips out volatile food and energy costs, rose 0.6 percent last month, repeating the previous month’s performance.
While deflation suggests goods are cheaper, it poses a threat to the broader economy as consumers tend to postpone purchases in the hopes of further reductions.
A lack of demand could force companies to cut production, freeze hiring or lay off workers, while also having to discount existing stocks — dampening profitability even as costs remain the same.
The NBS also said the producer price index sank for the 14th consecutive month, sliding 3.0 percent year-on-year compared with 2.6 percent the previous month.
Dong attributed the decline to “a rebound in international oil prices which weakened demand for some industrial goods.”
China has struggled with falling prices much of this year, contrasting with many other parts of the world where central banks are focused on taming inflation instead.
Bloomberg Economics expects deflationary risks to persist into next year, as there are not enough catalysts to counter the housing slump, which has suppressed demand and prices.
Deflationary pressures have increased due to weak domestic demand, Pinpoint Asset Management Ltd (保銀私募基金管理) chief economist Zhang Zhiwei (張智威) said.
“This highlights the importance of more supportive fiscal policy,” Zhang added.
Additional reporting by Bloomberg
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