In November, China’s consumer inflation reached a notable low, marking a five-month decline that disappointed market analysts. The National Bureau of Statistics reported a mere 0.2% increase in the consumer price index (CPI) when compared to the same period last year. This figure significantly fell short of the anticipated rise of 0.5% forecasted by economists surveyed by Reuters. October had recorded a modest uptick of 0.3%, indicating that the recent statistics may reflect deeper underlying issues in the Chinese economy.
When analyzing core inflation—which strips out the usually volatile food and fuel prices—it showed a slight increase to 0.3% from 0.2% in October. Conversely, significant volatility was seen in the prices of essential commodities, such as pork and fresh vegetables, which surged by 13.7% and 10.0%, respectively. The disparity between core inflation and specific food price increases may further complicate the economic landscape, as it reflects a mixed bag of consumer pressures.
On another front, the Producer Price Index (PPI), which reflects wholesale inflation, highlighted a concerning erosion in pricing power, slumping for the 26th consecutive month with a year-on-year decline of 2.5% in November. Interestingly, this drop was less severe than the 2.8% reduction anticipated by analysts. The PPI declines were driven largely by significant drops in the costs associated with ferrous metal materials, fuel and power, and chemical raw materials, signaling substantial weakness in industrial confidence.
Economists, including Erica Tay from Maybank, are expressing growing concern regarding this entrenched deflationary period. The sustained price decreases indicate not just a temporary downturn, but a fundamental disconnect between supply and demand, exacerbated by high accumulated inventories in manufacturing. As businesses grapple with an oversupply of both inputs and finished products, this mismatch has contributed to ongoing price deflation.
China’s current inflationary pressures—or lack thereof—highlight a substantial struggle with domestic demand. The persisting near-zero retail inflation showcases how consumers are either unwilling or unable to spend, an alarming signal for policymakers. Despite various stimulus measures initiated by the Beijing administration, including interest rate cuts and incentives for key sectors like property and banking, the expected consumer response has not materialized to stimulate broader economic health.
Becky Liu, head of macro strategy at Standard Chartered Bank, has suggested that the specter of deflation may linger, comparing the situation to previous trade disputes, particularly with the United States. Liu posits that negative PPI figures are symptomatic of broader economic malaise, with expectations that such conditions will extend through 2025.
While inflation characteristics paint a picture of struggle, there remain pockets of resilience within the Chinese economy. Notably, October retail sales exhibited robust growth, outpacing expectations, while manufacturing activity registered expansions for two consecutive months in November. These indicators provide a glimmer of hope that not all sectors are retreating, hinting at potential recovery trajectories.
Furthermore, with the Central Economic Work Conference approaching, top leaders in China are poised to discuss strategic goals that may recalibrate economic stimulus measures aimed at revitalizing growth. However, even with positive retail sales and a promising manufacturing sector, the overall growth outlook appears overly cautious.
Amid such mixed signals, Fitch Ratings opted to revise down its GDP growth forecasts for 2025 and 2026, reflecting a more pessimistic view that anticipates a pronounced shift in U.S.-Sino trade relations. The adjusted growth projections from 4.5% to 4.3% for 2025 and from 4.3% to 4.0% for 2026 signal a recognition of the potential economic headwinds that may manifest due to external pressures and persistent internal challenges.
While some signs of stabilization within the real estate sector present cautiously optimistic perspectives, the ongoing downturn in property markets continues to pose significant risks to overall economic stability. As China navigates these complex dynamics, the interplay of inflationary pressures, consumer behavior, and external economic interactions will likely determine the broader trajectory of its economic health over the coming years.