China: Inflation drops to 11-year low in October
November 10, 2020
Consumer prices fell 0.3% over the previous month in October, contrasting September’s 0.2% increase. The print mainly reflected lower prices for food, tobacco and alcohol.
Inflation fell from September’s 1.7% to 0.5% in October. The print undershot the 0.8% result that market analysts had expected and represented the lowest reading since November 2009. Annual average inflation fell from September’s 3.6% to 3.3% in October.
Annual producer prices (PPI), meanwhile, fell 2.1% year-on-year in October. The print matched the result in September and was below the 1.9% decrease expected by market analysts.
Inflation is moderating due to a high base effect from last year when consumer prices were plagued by a surge in pork prices. In this regard, Ting Lu, Lisheng Wang and Jing Wang, economists at Nomura, comment that:
“We expect headline CPI inflation to drop further towards zero in the next several months on a still-unfavorable base effect driven by a massive rise in pork prices from end-2019 through the spring of 2020. China’s economy has been recovering and, in sequential terms, has also experienced a moderate reflation. We do not think the PBoC will react to the decline in CPI inflation data by turning more dovish but do expect Beijing to maintain its “wait and see” policy approach.”