Chinese consumer prices fall for first time since 2009

Sharp drop in price of pork leads overall decline of 0.5% in unexpected return to deflation as producer prices also dropped 1.5% year-on-year in their 10th consecutive fall

Chinese consumer prices fall for first time since 2009
Pigs are seen in their pen on a family farm in the village of Xiaoxinzhuang in China's Hebei province. Outbreaks of African swine fever forced farmers to cull animals, pushing up prices of meat. File photo by Reuters.

(ATF) Chinese consumer prices fell for the first time in 11 years in November, led by declines in the cost of pork, the country's main protein staple.

The consumer price index dipped by 0.5% year on year, from growth of 0.5% in the previous month. Economists polled by Reuters forecast no change in prices.

The price of pork fell 12.5% after months of rising prices caused by outbreaks of African swine fever.

The illness forced farmers to cull animals, pushing up prices of the meat, but improved hygiene has restored China's herds of pigs.

Analysts said the fall in CPI marked an unexpected return of deflation. "We expect CPI to remain in deflation until March 2021, but [expect a] return to inflation from Q2 onwards," said Barclays China economist Jian Chang.

The deflation is positive, said Allan von Mehren, chief China analyst at Danske Bank. "It is due to supply-side changes and gives a boost to purchasing power."

Factory gate decline

Producer prices fell 1.5% year on year, the 10th consecutive fall for factory gate prices, adding to signs that the economy continues to recover from the CovidD-19 pandemic.

The producer price index fell 1.5% from a year earlier, the National Bureau of Statistics said in a statement on Tuesday. The index was expected to ease 1.8%, according to the median forecast in a Reuters poll, after a 2.1% drop in October.

Julian Evans-Pritchard, senior China economist with Capital Economics, said he expects consumer prices will drop further in the near term thanks to the recovery in the pork supply. 

“That said, we think the [People’s Bank of China] will look through this and focus on underlying inflation which is likely to pick up in the coming months as economic activity remains strong,” he said.

Steady recovery

China has seen a steady recovery since it was hard hit by the coronavirus pandemic in the first quarter of 2020, when authorities imposed lockdowns and travel restrictions to contain the virus.

On Wednesday, China's National Health Commission reported just 15 new confirmed Covid-19 cases, all but four imported. The local cases were all in Sichuan province.

Earlier this week, China Customs data showed exports grew at the fastest pace in almost three years in November.

Manufacturing activity also expanded at its quickest rate in more than three years that month.

ALSO SEE:

China eyes more US corn after recent flood crisis

China claims to find coronavirus in imports of chilled meat

China producer prices show deflation moderating

CPI PPI pork prices China