China’s Consumer Prices Rebounded Without Easing Deflation Fears

China’s consumer-price growth accelerated to the fastest in over a year as food costs rose sharply higher, an improvement that’s failing to allay fears about the depth of deflation across large swathes of the economy.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — China’s consumer-price growth accelerated to the fastest in over a year as food costs rose sharply higher, an improvement that’s failing to allay fears about the depth of deflation across large swathes of the economy.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The consumer-price index climbed to 0.7% in November from a year earlier, staying above zero for a second month and matching the median forecast of economists surveyed by Bloomberg. But factory deflation unexpectedly worsened as it extended into a 38th month, with producer prices falling 2.2%. China’s core CPI, which excludes volatile items such as food and energy, ended a six-month streak of acceleration and was unchanged at 1.2%, according to data released by the National Bureau of Statistics on Wednesday.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.The mixed readings underscore the strength of deflationary pressures that are eating into corporate profits and worker incomes. Persistent weakness in domestic demand has frustrated a campaign by the government to crack down on price wars and cutthroat competition among companies. “The larger-than-expected contraction of PPI suggests China’s deflation does not abate,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “This should be the policy priority for 2026.”China has been struggling with deflation since the end of the pandemic as a consequence of a prolonged slump in housing and weak consumer demand. A glut of production capacity in some industries has also led to oversupply, pushing firms to cut prices to survive. The country’s gross domestic product deflator — the broadest measure of prices — is set to decline for the third straight year by the end of 2025, the longest streak since China transitioned toward a market economy in the late 1970s. Yields on 10-year and 30-year Chinese government bonds reversed earlier gains after PPI disappointed estimates. Stocks held onto their losses both onshore and offshore.The improvement in CPI “is still too mild to really change the growth or earnings outlook,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “Markets need a longer run of firmer price data and stronger fiscal support before they re-rate China in a bigger way.”The headline reading may not reflect the full extent of deflationary pressure in the consumer economy, especially as bullion prices soar.Gold jewelry prices soared 58.4% from a year ago, according to a separate statement by NBS statistician Dong Lijuan. That’s a faster than the 50.3% increase in October, and likely led to a bigger boost to overall and core consumer inflation. In a sign of the fallout from gold prices, the CPI category of “miscellaneous goods and services” — which includes jewelry — surged 14.2% from a year ago, a record in data going back to 2016.Food prices rose on year for the first time since January, led by a 15% surge in fresh vegetables and narrower declines in meat. That likely reflected the impact of colder weather and a low base of comparison from last year, according to Capital Economics.By contrast, non-food inflation slipped to 0.8% after accelerating for much of this year, dragged down by declines in the cost of transport and communication. Services prices grew at a slower rate relative to October, while an increase in housing costs weakened slightly to zero.What Bloomberg Economics Says …“The rise in China’s consumer inflation in November doesn’t signal much progress in beating deflation. The pickup was largely driven by food prices, which tend to fluctuate with supply factors. Meanwhile, a slightly deeper drop in factory-gate prices showed deflationary pressure is far from gone.”— Eric Zhu, economist; click here to read the full report.While the government has pledged to tackle the “disorderly” price competition, progress has been limited because of concerns over the risk of job losses and weaker economic growth. China’s GDP expansion already decelerated last quarter to the slowest pace in a year. Analysts see a further slowdown, forecasting the weakest gain this quarter since the final three months of 2022, when the nation was nearing the end of its Covid Zero lockdowns. Even so, the economy is on track to achieve the official growth goal of about 5% this year.The latest inflation data is unlikely to constrain the central bank’s easing next year, especially if a recovery in food prices accounts for much of the upswing, according to ING Groep NV economist Lynn Song. ING forecasts the People’s Bank of China will deliver 20 basis points of rate cuts in 2026, double the cumulative reductions seen so far this year.“Recent attention has been on getting 2026, the first year of the next Five-Year Plan period, off to a good start,” Song said in a note. “This will likely require another wave of policy support in the early months of next year.”—With assistance from Winnie Hsu, Penny Peng (News) and Lianting Tu.(Updates with additional details throughout.)Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.