China’s producer prices fell by 2.5% year-on-year in November 2024, marking the 26th consecutive month of producer deflation. However, the drop was softer than October’s 2.9% decline and came in below market expectations of a 2.8% fall, reflecting Beijing’s ongoing efforts to combat weak demand as the year-end approaches. This represents the softest producer deflation figure since August, signaling some stabilization in factory-gate prices amidst targeted measures to stimulate economic activity. While producer prices remain in negative territory, the slower pace of decline provides a glimmer of hope for the recovery of China’s industrial sector.

Slower Decline in Production Materials and Consumer Goods

The cost of production materials shrank at a slower pace in November, down by 2.9% compared to a 3.3% fall in October. Key industrial sectors like mining (-4.9% vs -5.1%), raw materials (-2.9% vs -4.0%), and processing (-2.7% vs -2.9%) all saw softer declines, reflecting modest improvements in demand and pricing power. Similarly, the decline in consumer goods prices also eased slightly, shrinking by 1.4% compared to a 1.6% drop in October. This was due to smaller price decreases in food (-1.5% vs -1.6%), clothing (-0.3% vs -0.4%), and durable goods (-2.7% vs -3.1%), while prices for daily-use goods edged higher by 0.2%, up from a 0.1% increase in October. These figures suggest a gradual improvement in domestic market conditions, particularly for everyday goods.

First Monthly Increase in Producer Prices in Six Months

On a monthly basis, producer prices edged up by 0.1%, reversing a 0.1% decline in October and marking the first increase in six months. This uptick indicates the potential beginning of stabilization in producer pricing, likely influenced by seasonal demand increases and government measures to support industrial production. The slight monthly rise, though modest, is significant as it reflects the effectiveness of recent policy efforts aimed at reversing prolonged deflationary trends in the industrial sector.

Year-to-Date Performance and Outlook

For the first eleven months of 2024, factory-gate prices dipped by an average of 2.1%, reflecting the persistent challenges facing China’s manufacturing sector. While the softening deflation in November is a positive sign, it underscores the long road ahead for recovery. The industrial sector’s struggles with weak global demand, low commodity prices, and subdued domestic investment remain substantial hurdles. Policymakers are likely to maintain or intensify stimulus efforts, including fiscal and monetary measures, to sustain the recent improvements and drive growth in industrial production.

In conclusion, China’s November producer price data reveals tentative progress in addressing deflationary pressures, with softer declines and a rare monthly increase providing cautious optimism. However, sustained recovery will depend on the effectiveness of ongoing policy measures and the broader economic environment, both domestically and internationally.