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China Inflation November 2023

China: Consumer prices post greatest fall since November 2020 in November

Consumer prices declined 0.5% year-on-year in November on lower food and transport prices, following October’s 0.2% year-on-year decrease. November’s result marked the largest fall in consumer prices since November 2020, and was far steeper than market expectations of a 0.1% drop.

Consumer prices fell 0.50% from the previous month in November, which was below the 0.10% drop seen in October. November’s result marked the weakest reading since February. In addition, the trend pointed down slightly, with annual average inflation coming in at 0.4% in November (October: 0.6%).

Meanwhile, producer prices fell 3.0% on an annual basis in November, which was a sharper decrease than October’s 2.6% decrease and was also a larger fall than markets were expecting.

On the reading and policy implications, Nomura analysts said:

“The latest inflation reading suggests that the economy remained fairly weak in November and there is another dip taking place after the short-lived stabilisation in late Q3, and we continue to believe it is still too early to call the bottom. We expect Beijing will eventually have to significantly gear up its policy measures some time in the spring of 2024.”

On the inflation and policy outlook, United Overseas Bank’s Ho Woei Chen said:

“Given the weak price momentum, we expect to see CPI staying in deflation in the next two months, but this is unlikely to be sustained. We maintain our forecast for prices to rise by an average of 1.7% in 2024 […]. We forecast the 1Y and 5Y loan prime rates (LPR) to fall by 10 bps to 3.35% and 4.10% respectively in 1Q24. Another 25 bps cut to banks’ reserve requirement ratio (RRR) may be delivered earlier to provide additional market liquidity.”

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