China Nov inflation falls to five-year-low of 1.4 per cent: Govt

A Chinese national flag fluttering in front of the headquarters of the People's Bank of China, China's central bank, in central Beijing.

BEIJING - China’s consumer inflation fell to a five-year low of 1.4 per cent in Nov, the government said Wednesday, increasing concerns over the risk of deflation in the world’s second-largest economy.

The news comes after the central People’s Bank of China on Nov 21 shocked markets by slashing interest rates for the first in more than two years to kickstart the economy and analysts said they expect further easing measures in the new year.

The rise in the consumer price index is the lowest since Nov 2009 and came in short of a median forecast of 1.6 per cent in a survey of 16 economists by the Wall Street Journal, and marks a slowdown from October’s 1.6 per cent.

The National Bureau of Statistics also said the producer price index (PPI) – a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI – fell 2.7 per cent year-on-year, the worst reading since a similar decline in June 2013.

The last PPI increase was in Jan 2012.

The data signal further downward pressure on economic activity in China, a key driver of global growth, with figures Monday showing imports unexpectedly fell and exports grew far slower than forecast.

The country has also been hit by disappointing manufacturing activity, tumbling property prices and nagging concerns over corporate and local government debt.

“China has entered into a rapid dis-inflation process, and faces the risk of deflation as commodity prices continue to trend lower and growth is expected to slow further in the coming year,” ANZ economists Liu Li-Gang and Zhou Hao wrote in a reaction to the data.

Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices lead shoppers to delay purchases and companies to put off investment, both of which can hurt growth.

Further easing expected

“We expect inflation to remain below 2.0 per cent in 2015, which may raise concerns of deflation and trigger more policy easing,” Nomura economists said in a note after the data release.

Economists have been expecting further easing after last month’s rate cuts, including reductions in the reserve requirement ratio (RRR), the amount of cash banks must keep on hand. Cutting the level means more money is available for lending, which can have a stimulatory effect on the economy.

The Nomura economists said they expected one more interest rate cut in the second quarter of 2015, with RRR reductions in each quarter of next year.

Julian Evans-Pritchard, China economist at Capital Economics, said price rises should ease further heading into 2015, citing cheaper soybeans and pork.

But he said worries about deflation risks were overblown despite the worsening producer prices figure.

“Industrial input costs are falling, on the back of lower commodity prices, but the factory gate price of final consumption goods has remained broadly flat and so many firms are actually better off,” he wrote in a reaction.

The inflation data came after China’s top leaders opened a meeting Tuesday to craft economic policies for 2015, including targets for economic growth inflation.

China’s growth came in at 7.3 per cent in the third quarter, the slowest since the height of the global financial crisis in early 2009.

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