In China, local financial authorities are struggling with falling prices, while in many other countries, central banks are taking measures aimed at curbing the process of increasing the cost of goods and services.
According to data published by the National Bureau of Statistics at the end of last week, the consumer price index in the mentioned Asian country in November showed a decrease of 0.5% compared to the figure recorded for the same period last year. Analysts interviewed by the media predicted that in this case, the decline would be 0.1%.
The November result is also evidence that the dynamic of the decrease has accelerated. For example, in October, the consumer price index in China fell by 0.2% compared to the same period last year. Against the background of these economic indicators, calls for Beijing to take urgent measures that can stimulate the growth of consumer demand and prevent what can be described as a downward spiral in the cost of goods and services have intensified.
Information about the drop in prices was made public after it became known that the Chinese authorities intend to strengthen fiscal policy and monetary support. The leadership of the Asian country perceives these measures as actions to stimulate the growth of the economy, which is in a state of insufficient positive dynamic.
For most of 2023, Beijing has been struggling with weak prices. This situation is partly due to the crisis in the local real estate sector. Weak prices are also the result of falling consumer confidence. The authorities are trying to fix the situation.
In 2023, China recorded a slowdown in consumer inflation. This indicator turned out to be in the so-called negative territory in July of the current year, which happened for the first time in more than two years. Consumer inflation returned to a positive range in August. The situation has not changed in September. In October, consumer inflation fell below zero again.
Citi analysts in a report published last Sunday, December 10, said that the current deflation situation in China is gradually deteriorating. According to them, the change in the state of affairs towards a more negative state is the result of the impact of three factors, including weak internal demand, a correction in the cost of oil at the global level, and actual indicators of food prices at the domestic market. Experts also say that signs of falling prices are spreading from goods to services.
The cost of food on the Chinese market in November decreased by 4.2% compared to the figure recorded for the same period last year. For example, pork fell in price by 31.8%. The cost of food has become a factor of significant influence on the consumer price index.
Gasoline also fell in price in China in November. This happened after the price of oil on the world market reached its lowest level in the last few months.
In November China recorded a slowdown in inflation in the sphere of services. Last month, this indicator increased by 1% year-on-year. In October, inflation in the mentioned sphere increased by 1.2% year-on-year.
The producer price index in China in November fell by 3% compared to the analog period of 2022. This indicator, which is mainly determined by the cost of necessities and raw materials, shows a downward trend for 14 consecutive months.
The intensification of the deflation process has become a reason to strengthen doubts that China’s economic system will recover shortly. Citi analysts say that there is no time for policy fluctuations now to prevent a vicious loop between trust, activity, and deflation.
Pan Gongsheng, governor of the People’s Bank of China, said last month in Hong Kong that the country would maintain an adaptive monetary policy to support the economy. He also expects an increase in consumer prices to be recorded in the coming months.
At the end of last week, China’s top officials gathered for a meeting of the Politburo, which resulted in a statement on additional efforts to expand domestic demand and stimulate spending by Chinese buyers. The annual Central Economic Work Conference (CEWC) will also be held in December. Investors are waiting for this event to understand the specifics of the existence of the Chinese economic system for the coming year. Citi analysts assume that following the results of the conference, a decision will be made to reduce the required reserves and interest rates.