In November 2024, China’s annual inflation rate unexpectedly eased to 0.2%, down from 0.3% in the previous month, falling short of market forecasts of 0.5%. This marks the lowest inflation figure since June and highlights mounting deflation risks in the country despite recent stimulus measures from Beijing and a supportive monetary policy stance from the central bank. The slower-than-expected inflation rate reflects underlying economic challenges, with weak demand and ongoing structural issues in the domestic market. The moderation in inflation suggests that the economy is not generating sufficient pricing power, which could potentially exacerbate deflationary pressures if this trend persists.

Softening Food Prices and Unchanged Non-Food Prices

One of the primary contributors to the easing inflation rate was the softening food prices, which rose the least in four months at 1.0% compared to 2.9% in October. This slowdown was primarily driven by softer increases in both fresh vegetables and pork prices. Lower food price inflation reflects weaker demand and an oversupply situation in key agricultural markets, which can be linked to recent government efforts to stabilize food prices. Meanwhile, non-food prices remained unchanged at 0.0%, a stark contrast to the -0.3% decline recorded in October. This stability in non-food prices is notable given the mixed performance across various sectors, with healthcare and education costs continuing to rise, albeit at a slower pace, while prices for transport and housing declined further.

Core Consumer Prices Show Modest Gain

The core consumer prices, excluding food and energy, rose by 0.3% year-on-year in November, the most in three months, following a 0.2% gain in October. This suggests a mild but gradual pickup in underlying inflationary pressures, signaling some resilience in domestic demand despite the broader slowdown. The increase in core inflation indicates that while headline inflation remains subdued, there is some recovery in sectors like healthcare and education where costs are rising. However, the muted overall inflation landscape remains a challenge for policymakers, as it implies that the central bank may need to maintain its supportive stance longer to stimulate economic activity without triggering inflationary pressures.

Monthly CPI Decline Suggests Sharpest Decrease Since March

Monthly, the Consumer Price Index (CPI) fell by 0.6%, surpassing October’s 0.3% drop and the estimated 0.4% decline, marking the sharpest decrease since March. This monthly contraction underscores persistent deflationary pressures in China’s economy. The decline points to weaker consumer spending and the effect of recent property market challenges, which have continued to dampen demand across various sectors. The sharp drop in CPI is a concerning sign for policymakers, as it indicates that despite the recent stimulus measures, the economy is struggling to gain traction. The persistent deflationary trend could lead to longer-term challenges in achieving sustainable economic growth if not addressed adequately.

Overall, China’s November inflation data reveals the fragility of its economic recovery amidst a complex global environment. While there are some positive signs, such as the stability in non-food prices and the modest gain in core inflation, the broader deflationary risks present a challenge for the country’s economic policymakers. The ongoing need for targeted stimulus measures and supportive monetary policies is evident, as the Chinese economy navigates through these economic headwinds.