Deflation threat returns to haunt Chinese economy as risks from US trade war linger
- Both consumer price index and producer price index fell on a monthly basis due to weak demand and a steep drop in oil prices
- Bad news follows slower than expected drop in imports and exports
China suffered another economic blow on Sunday with the return of the deflation threat, a day after it reported slower than expected growth in exports and imports.
A fall in both consumer and producer price indexes was a result of weakness in demand from both Chinese consumers and investors and reflected their reluctance to spend as confidence in future growth is undermined by the trade war with the US.
The figures add the challenge faced by the Chinese leadership in keeping economic growth on track ahead of the annual central economic work conference, where policies for next year will be determined.
Last month the consumer price index fell 0.3 per cent from October while the producer price index dropped 0.2 per cent – the first month-on-month fall in seven months – due to the steep fall in the price of crude oil and coal, according to data released by the National Bureau of Statistics on Sunday.
On a yearly basis, China’s PPI rose only 2.7 per cent in November, the lowest reading in two years, while China’s CPI in November rose 2.2 per cent from a year earlier, the lowest in four months, the official statistics showed.
Analysts said deflationary pressure was set to continue as economic activities to weaken.
Jiang Chao, an analyst with Haitong Securities, wrote in a note before the Sunday data was released that China’s PPI would drop to zero in December and fall further into negative territory in 2019, officially putting China in a deflationary zone.