Consumer inflation in China increased in November to its highest point in almost two years, and the producer price deflation intensified, highlighting the difficulty that policymakers have in stimulating domestic demand amid ongoing trade tensions.
The data released by the National Bureau of Statistics on Wednesday showed that consumer prices were on the rise by 0.7 percent compared to the previous year, the highest since February last year.
This growth came after a 0.2 percent upward adjustment in October and was equivalent to a 0.7 percent move projected in a Reuters poll of economists.
The factory-gate prices dropped by 2.2 percent in November compared to the previous year, mainly due to the higher comparison base, and this is against an expected fall of 2 percent, and has made it the last four years of deflationary stretch, and the decline followed a 2.1 percent slip in October.
Inflation core, excluding the food and energy price volatility, increased 1.2 year-on-year in November, compared to the same growth in the previous month.
According to Dong Lijuan, the NBS chief statistician, the CPI was improved by the increase in food prices, increasing 0.2 percent in the previous year after a 2.9 percent decline in October. Energy prices fell 3.4 percent compared to the previous year, compared to a contraction in the previous month.
The consumption-driven stimulus policies in Beijing kept pushing the prices of home appliances and clothing products, which increased 4.9 percent and 2 percent, respectively. Gasoline-powered and new-energy vehicle prices dropped by 2.5 percent and 2.4 percent.
Therefore, the prices of gold accessories increased by 58.4 percent every year. Although there has been an upturn in consumer prices, there is a risk of deflationary pressure that is deeply rooted in the Chinese economy, as warned by economists.
Goldman Sachs noted that the headline CPI was mostly driven by increased prices of fresh vegetables under a shortage of supply, due to the bad weather, and the core inflation number was assisted by soaring gold prices.
The Wall Street bank estimates that core CPI inflation, without considering the gold prices, declined slightly between October and November.
On a monthly basis, CPI fell 0.1 percent against the expected 0.2 percent increase in a Reuters poll, as prices of hotels, flights, transportation, and travel agencies fell following last extended holiday in October.
Some of the categories that registered the largest declines in factory-gate prices were the coal mining and washing industry, which experienced a 11.8 percent decline in prices compared to that of a year ago, and the oil and gas extraction industry, which declines were recorded to be by 10.3 percent.
Since the pandemic, China has been finding it hard to shake off the deflationary pressure, with a prolonged housing downturn and poor labour market conditions continuing to drag on household expenditure.
Oversupply has also been caused by overproduction in some industries, whereby companies are forced to reduce prices as a competition strategy.
A market analyst at stock trading platform eToro, Zavier Wong, said that “Manufacturers are still cutting prices to shift excess supply, and that persistent decline highlights how weak demand conditions remain.”
Wong stated that “Until demand strengthens more broadly and price pressures become more balanced, China’s recovery will continue to feel uneven, even if the headline numbers appear to be improving.”
As the economic growth in the third quarter lowered to its lowest point in a year, China seems to be on its way to achieving its annual growth target of about 5 percent this year, based on the robust exports as the manufacturers prepared with higher quantities to send to non-U.S. markets.
China has registered over $1 trillion in trade surplus in the first 11 months of the year, topping the full-year record in 2024 as the country sailed through the current trade tensions and increasing economic protectionism across the globe.
During one of the most important meetings of this month, the Politburo, the leading decision-making body of the ruling Communist Party, listed the expansion of domestic demand and redistribution of supplies among the main priorities of the economy in 2026.
China’s economist at Goldman Sachs, Lisheng Wang, added that “Although policymakers maintained their easing bias, they appeared less inclined towards broad-based stimulus measures.”
Wang further reported that policymakers might need to reiterate their rhetoric of easing in the coming year and increase the pro-growth policy actions.
Investors and economists will be following the annual Central Economic Work Conference that is likely to take place in the coming days, during which the policymakers will establish important growth targets and policy priorities to be achieved next year.
Hence, the official figures are not to be published until the annual meeting of parliament in March.
