Weaker pork prices helped bring China’s consumer price inflation to its lowest level in eleven years, adding to concerns about the strength of household spending as the country recovered from the coronavirus pandemic.
According to official data, the consumer price index rose by 0.5 percent in October compared to the previous year, and was thus below the economists’ expectations of 0.8 percent. This corresponds to an increase of 1.7 percent in September and 2.4 percent in August.
A fall in headline inflation in China is mainly due to food prices, which soared sharply in the summer following floods across the country, reducing supply. Prices rose by just 2.2 percent in October.
Pork prices, a crucial factor in the country’s shopping cart, fell 2.8 percent in October year-over-year since March 2019. Prices for the world’s largest pork producer and consumer rose more than 100 percent in the first half due to African swine fever.
The unexpectedly low inflation data reflects weak household demand at a time when economists are closely monitoring the role of Chinese consumption in the recovery from the pandemic.
The release also increased the prospect of CPI deflation in China before the end of the year, which could impact business confidence, even if it is mainly driven by the price of food.
Core inflation in the consumer price index excluding food and energy was 0.5 percent in October and has been at its lowest level since 2010 for several months.
“One thing that explains weak core CPI inflation is that due to overall weak demand, retailers and businesses are hurting. . . This year may have been trying to cut prices to get more sales, ”said Jingyang Chen, a major Chinese economist at HSBC.
Retail sales data due to be released next week, as well as Singles’ Day, the world’s largest shopping event starting tomorrow in China, will provide further clues as to the strength of consumer demand in the country. Retail data returned to growth in September but lagged behind stronger growth in a booming industrial sector.
Ms. Chen noted that sales are picking up in certain areas, such as the automotive sector, but added that “the path to recovery in consumption will be very gradual,” and headline CPI in the negative in the coming months Area could fall.
Ting Lu, China’s chief economist at Nomura, said the decline was mainly due to pork prices. He suggested that People’s Bank of China would not respond to lower inflation by easing monetary policy, and said Beijing would maintain a wait and see approach.
The producer price index, a measure of factory prices, was unchanged at minus 2.1 percent in October and remained in the deflationary range due to the low oil prices.