(Bloomberg) -- China’s consumer inflation unexpectedly decelerated in November while factory deflation eased, painting a mixed picture of the effects of recent stimulus efforts on the economy ahead of key policy meetings this week.
The consumer price index rose a less-than-forecast 0.2% from a year earlier, the lowest since June, while core inflation picked up slightly. Factory deflation extended into a 26th straight month, though the producer price index recorded a slower drop of 2.5% compared to October.
Taken together, the official data released Monday showed Beijing’s measures stabilized sentiment but have yet to reverse a deflationary trend. The readings came before the Communist Party’s top decision-making Politburo is expected to hold its traditional December huddle on the economy, likely to be followed by the Central Economic Work Conference on Wednesday.
“Weaker inflation may intensify calls for additional policy stimulus in December,” said Carlos Casanova, senior Asia economist at Union Bancaire Privee.
Reaction in the stock market was muted after the data was published. The benchmark CSI 300 Index of onshore shares reversed earlier gains and traded down 0.5% by noon break. The Hang Seng China Enterprises Index, which tracks Chinese stocks traded in Hong Kong, also fluctuated to trade 0.6% down.
Many expect the meetings this week to signal stronger stimulus to achieve a growth target similar to this year’s “around 5%” expansion, after Beijing rolled out a broad policy package from late September to defend that goal. Looming US tariffs following the election of Donald Trump mean China needs to prepare and counter any shock to exports, which have been a key pillar of growth since the pandemic.
Top officials will “surely want to boost domestic consumption in the face of external uncertainties in 2025,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. But any sustained improvement will require an overall turnaround in the economy and property market, he added.
What Bloomberg Economics Says...
“The weak price signals, coming on the heels of sluggish PMIs, reinforce the impression that stimulus delivered so far is failing to revive the economy.”
— David Qu, economist. For full analysis, click here
For next year, officials have hinted at greater fiscal stimulus and vowed to expand a government program to subsidize purchases of home appliances and cars. Consumption growth received a boost from those subsidies in recent months, although the effect is likely temporary.
The People’s Bank of China is expected to continue easing monetary policy by cutting interest rates and the reserve requirement ratio, which will free up cash for banks to lend. A reduction in the RRR is widely expected in the coming weeks. Some Wall Street banks also forecast the biggest interest-rate cuts in a decade next year.
Moderating food inflation was a drag on price growth in November. Prices of pork, vegetables and fruits — key components of China’s CPI basket — fell significantly from the previous month, as the negative effect of heavy rain in the summer on food production faded.
Declines in the prices of gasoline, cars, home appliances, rent and tourism services also weighed on overall consumer prices.
Dong Lijuan, chief statistician at the NBS, attributed the modest rise in consumer prices to higher temperatures and a decline in travel last month. Producer prices, on the other hand, benefited from accelerated real estate and infrastructure projects, with prices of industrial products including cement, non-ferrous metals and steel improving.
The uptick in core CPI and narrowing of PPI decline “shows that corporate and household confidence has recovered faster after a slew of policy stimulus,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc.
“But residents’ ability and willingness to consume remains low, expectations for private investment are still weak, the property market is still in deep correction,” he said.
There was an improvement in retail sales in October, partly driven by the long holiday that boosted private consumption. Data on industrial output, retail and investment due next week will show whether that continued into November.
“Economic activities stabilized recently but the recovery is not strong enough to boost inflation yet,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “It requires a much stronger fiscal push to get China out of the deflationary environment.”
--With assistance from Zhu Lin.
(Updates with more details throughout.)
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