BEIJING (Reuters) -China’s consumer prices fell in October as key indicators of domestic demand pointed to weakness not seen since the pandemic, while deflation in factories deepened, casting doubt on the chances of a recovery broad economic.
The consumer price index (CPI) fell 0.2% in October from a year earlier and was down 0.1% from September, data from the National Bureau of Statistics (NBS) showed on Thursday.
The declines surpassed the average annual decline of 0.1% and the flat monthly reading forecast in a Reuters poll. Both indicators were last negative at the same time in November 2020, during the COVID-19 pandemic.
The headline number was hurt by a further drop in pork prices, which fell 30.1%, accelerating from a 22% drop in September, amid an oversupply of hogs and weak demand.
However, even underlying inflation, which excludes food and fuel prices, slowed to 0.6% in October from 0.8% in September, pointing to China’s ongoing battle with disinflationary forces and the risk of again missing the government’s global inflation target for the full year, set at around 3%.
Consumer prices entered deflation in July and returned to positive territory in August, but remained stable in September. Industrial deflation persisted for the 13th consecutive month in October.
Combined with other economic indicators, fourth-quarter data so far suggests that a meaningful recovery in the world’s second-largest economy remains elusive.
“The data shows that combating persistent disinflation in a context of weak demand remains a challenge for Chinese policymakers,” said Bruce Pang, chief economist at Jones Lang Lasalle.
“An appropriate policy mix and further support measures are needed to prevent the economy from experiencing a downward trend in inflation expectations that could threaten business confidence and household spending.”
Month-on-month, the CPI fell 0.1%, compared to a 0.2% gain in September.
The producer price index (IPP) fell 2.6% year-on-year, compared to a 2.5% drop in September. Economists predicted a 2.7% drop in October.
Authorities have repeatedly downplayed the risks.
“There is no deflation in China and there will be no deflation in the future,” said a statistics bureau official in August.
Beijing has been stepping up measures to support the broader economy, including 1 trillion yuan ($137.43 billion) in sovereign bond issuance and a move to allow local governments to bring forward part of their bond quotas to 2024. .
But a housing crisis, local debt risks and political divergence with the West complicate the recovery process.
Recent economic indicators have been mixed.
China’s imports grew unexpectedly in October, while exports contracted at a faster pace. Meanwhile, the official purchasing managers index showed an unexpected contraction in factory activity and a slowdown in activity in services last month.
China also recorded its first quarterly deficit in foreign direct investment (FDI), highlighting capital outflow pressure following Western governments’ “risk reduction” measures.
“We expect China’s economy to grow 5.0% in 2023, in line with the target set by authorities, followed by 4.0% growth in 2024 and 2025,” Moody’s said on Thursday.
“However, we see downside risks to China’s growth trend due to structural factors.”
Reporting by Liangping Gao, Ella Cao and Ryan Woo; Editing by Sam Holmes