The consumer price index (CPI), the main indicator of inflation in China, rose 0.7% year-on-year in November, registering the highest increase since February 2024.
According to data released this Wednesday, 10th, by the National Statistics Office (GNE), the indicator confirms the expectations of most analysts, after two consecutive months of falls followed by an unexpected rise of 0.2% in October.
In six of the eleven months of this year, the Chinese CPI recorded negative values, with the biggest increase so far occurring in January (+0.5%), precisely one month before the sharpest drop of the year (-0.7%).
The risk of deflation has haunted the Chinese economy for two years, caused by a deep real estate crisis, which affected investment and consumption, at a time when the country is preparing to enter the new lunar year.
Deflation consists of a fall in prices over time, as opposed to an increase (inflation). The phenomenon reflects weakness in domestic consumption and investment and is particularly dangerous, as a drop in the price of assets, usually contracted using credit, generates an imbalance between the value of loans and bank guarantees.
Another effect is to lead to the postponement of consumption and investment decisions as a result of expectations of lower prices in the future, which can create a downward spiral in prices and demand that is difficult to reverse, affecting the entire economy.
Despite the increase compared to November 2024, the monthly variation was negative, with a drop of 0.1%, contrary to analysts’ forecasts, which pointed to a repeat of the 0.2% increase observed in October.
Official statistics Dong Lijuan attributed the year-on-year growth to the increase in food prices, which went from a drop of 2.9% in October to a rise of 0.2% in November. Of particular note are fresh vegetables, whose prices reversed a nine-month downward trend, rising 14.5% after a 7.3% drop in the previous month.
Underlying inflation – which excludes energy and food prices due to their volatility – remained stable, with a year-on-year increase of 1.2%.
Regarding the monthly drop in prices, Dong pointed out the end of the so-called “Golden Week” – the holiday period after National Day, celebrated on October 1st –, which resulted in a seasonal drop in service prices.
The GNE also released the production price index (IPP), which measures ex-factory prices. After four months of slowdown in declines, the indicator deepened the negative trend in November, with a year-on-year decline of 2.2%.
The drop was 0.1% higher than that recorded in October and was below analysts’ forecasts, which anticipated a more moderate contraction of 2%.
Dong explained the slowdown with a high comparative base on the same period last year, highlighting, however, that the monthly data was once again positive: industrial prices rose for the second consecutive month (+0.1%), driven by seasonal demand for coal and natural gas and the rise in international prices of non-ferrous metals.