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China’s Battle Against Falling Prices: Calls for Urgent Action to Boost Demand

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China’s Battle Against Falling Prices: Calls for Urgent Action to Boost Demand

China Faces Inflation Battle as Consumer Prices Fall

According to data published by the National Statistics Office on Saturday, the Consumer Price Index (CPI) in China fell 0.5% in November compared to a year ago, marking the biggest drop since November 2020. This figure was worse than expected, as analysts had forecasted a decline of only 0.1%.

The drop in CPI represents an acceleration compared to the previous month, prompting calls for immediate action by Beijing to boost demand and avoid a downward price spiral. The country has been struggling with price weakness for most of the year due to a slumping housing market and weak consumer confidence. This has resulted in a negative CPI in July for the first time in over two years.

Food prices, particularly pork prices, and gasoline prices have been key contributing factors to the decline in CPI. The weakened domestic demand, corrections in international oil prices, and the triple blow of domestic food prices have worsened the deflation situation in China.

The Producer Price Index (PPI), which depends mainly on the prices of basic products and raw materials, also fell 3% in November, marking 14 consecutive months of declines.

The worsening deflationary pressure has raised doubts about China’s economic recovery. In response, policymakers have promised to bolster fiscal and monetary support to boost the ailing economy. They have also pledged to expand domestic demand and stimulate consumer spending.

Investors are now anxiously awaiting further details on economic policy for next year and expect imminent cuts to the reserve requirement ratio and official interest rates. The upcoming Central Economic Work Conference (CEWC) later this month will set the tone for economic policy for the coming year.

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