Weaker pork prices helped push China’s consumer price inflation to its lowest level in 11 years, adding to concerns over the strength of household spending in the country’s recovery from the coronavirus pandemic.
The consumer price index rose 0.5 per cent year-on-year in October, official data show, lower than economists’ expectations of 0.8 per cent. That compared to a 1.7 per cent rise in September and 2.4 per cent in August.
A decline in headline Chinese inflation has been mainly driven by food prices, which rose sharply over the summer after flooding across the country restricted supply. Prices increased just 2.2 per cent in October.
Pork prices, a crucial input in the country’s basket of goods, fell 2.8 per cent in October in their first year-on-year drop since March 2019. Prices in the world’s biggest producer and consumer of pork were up more than 100 per cent in the first half of the year due to African swine fever.
The lower-than-expected inflation data reflect sluggish household demand at a time when economists are closely watching the role of Chinese consumption in its recovery from the pandemic.
The release also raised the prospect of CPI deflation in China before the end of the year, which could have an impact on business confidence even if it is primarily driven by the price of food.
Core CPI inflation, which excludes food and energy, was 0.5 per cent in October and has remained at that level — its lowest since 2010 — for several months.
“One thing to explain the weak core CPI inflation is that, because of overall weak demand, retailers and companies . . . this year may have tried to press down their prices in order to promote more sales,” said Jingyang Chen, greater China economist at HSBC.
Retail sales data to be released next week as well as Singles’ Day, the world’s biggest shopping event, which begins in China tomorrow, will offer further clues to the strength of consumer demand in the country. Retail sales data returned to growth in September but continued to lag behind stronger growth in a booming industrial sector.
Ms Chen pointed to sales in certain areas, such as automobiles, picking up but added that “the path for recovery in consumption will be very gradual” and headline CPI could fall into negative territory in coming months.
Ting Lu, chief China economist at Nomura, said the decline was driven mainly by pork prices. He suggested the People’s Bank of China will not react to the lower inflation by loosening monetary policy and said Beijing would maintain a “wait and see” approach.
The producer price index, a measure of factory gate prices, was unchanged at minus 2.1 per cent in October and has remained in deflationary territory due to low oil prices.