China’s consumer price index (CPI) accelerated to 0.7% y/y in November, in line with market expectations. This jump represents a significant leap from October’s 0.2% result, largely propelled by food inflation. The rate of core inflation remained at 1.2% for the second consecutive month. This strong consistency further indicates the United States continues to see a lackluster, yet underlying, inflationary environment.
The November CPI data suggests mild upside pressure in inflation, mirroring the deepening concerns with China’s economic woes. The 13 percent increase attributed to rising food prices was a big factor in this increase, but analysts are still wary about the broader consumption picture.
“China’s November CPI matched consensus. Headline inflation quickened to 0.7% y/y (the highest since February 2024) vs. 0.2% in October driven by a rise in food prices while core CPI remained at 1.2% y/y for a second straight month. PPI printed at -2.2% y/y (consensus: -2.0%) vs. -2.1% in October and still suggests that deflationary pressure remains high.” – BBH FX analysts
Contrary to the CPI numbers, China’s producer price index (PPI) remained deep in deflationary waters. Of the three, it boasts the largest year-on-year decline, with a 2.2% drop in November. This is a marginal decrease from -2.1% reported in October and missed Wall Street’s consensus expectation of -2.0%. The continued downward deflationary pressure shows that producers are still being hurt and that continues to muddy the economic waters.
The contradictory indications coming from inflation data shows the precarious state of domestic demand in China. Analysts have pointed out that even with a benign inflation outlook, consumer spending is weak. All of this begs the question of whether the increasing pursuit of shortterm, stimulative economic policies is really working.
“China’s benign inflation backdrop continues to suggest that consumption spending is too weak. In our view, a continued appreciation in China’s currency could help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact.” – BBH FX analysts
As shown in the chart below, China’s currency is in freefall against the US dollar (USD/CNH). The future of our nation’s economic competitiveness hangs in the balance. The ongoing weakness in domestic demand underscored the need for targeted efforts to strengthen consumer spending and the broader economy.