China’s Consumer Inflation Hits Two-Year High
Synopsis
In November consumer prices in China increased by 0.7 per cent reaching the peak not seen since February 2024 whereas factory gate prices dropped by 2.2 per cent continuing deflation for the consecutive year. Core inflation held steady at 1.2 per cent year-over-year. The rise in CPI was primarily driven by food costs following a decline in October. Economists cautioned that deflationary forces remain deeply rooted due to the housing slump and a fragile labour market, both of which suppress household expenditure. China recorded over $1 trillion trade surplus in the first 11 months, topping the 2024 full-year record amid ongoing trade tensions.
Consumer inflation in China surged in November to its highest level, in almost two years, whereas factory-gate prices declined more rapidly highlighting the challenges policymakers confront as they strive to boost domestic demand amid ongoing trade tensions. According to data released by the National Bureau of Statistics on Wednesday consumer price growth rose 0.7 per cent compared to the year marking the fastest increase since February of last year. This came after a 0.2 per cent increase, in October. Matched the 0.7 per cent growth predicted in a Reuters survey of economists.
Factory Gate Prices Dropped 2.2 Per cent in November
Factory gate costs decreased by 2.2% in November compared to the year. This was largely attributed to a prior-year base. The decline was slightly greater than the predicted 2% drop. This continued the period of deflation for a consecutive year. The reduction came after a 2.1% decrease in October. Core inflation, which omits fluctuating food and energy prices increased by 1.2% year over year in November. This was consistent, with the increase recorded in the month.
Dong Lijuan serves as the statistician at NBS. She stated that the rise in CPI was due to an increase in food prices. Food prices increased by 0.2 per cent compared to the year reversing a 2.9 per cent fall in October. Energy prices decreased by 3.4 per cent year-on-year a drop from the month before. Consumption-driven stimulus initiatives, in Beijing kept pushing up the costs of home appliances and clothing which rose by 4.9 per cent and 2 per cent respectively. Gasoline-powered and new energy vehicle prices decreased by 2.5 per cent and 2.4 per cent respectively. Prices, for gold accessories increased by 58.4 per cent compared to the previous year.
Economists Caution Against Persistent Robust Deflationary Forces
Despite the rise in consumer prices economists cautioned that deflationary forces continue to be embedded in China’s economy. Goldman Sachs noted that the overall CPI was mainly driven by increased vegetable prices caused by a supply shortage linked to adverse weather conditions. The core inflation number was boosted by the increase in gold prices. The Wall Street firm estimates that core CPI inflation, excluding gold prices, declined slightly from October to November.
Month-over-month the CPI decreased by 0.1 per cent. This contrasted with the 0.2 per cent rise anticipated in a Reuters survey. Costs for hotels, flights, transportation and travel agencies eased after the week-long- holiday in October. At the time among the steepest reductions in factory gate prices, the coal mining and washing sector experienced an 11.8 percent cent-, over-year decline. Oil and gas extraction dropped by 10.3 per cent.
Housing Downturn and Weak Jobs Weigh on Spending
The recent inflation data offered minimal relief regarding worries about entrenched deflation throughout the wider economy. An extended slump in housing coupled with labour market circumstances is suppressing consumer spending. The surplus production, in sectors has likewise led to oversupply. This situation is forcing companies to reduce prices to stay competitive. Nevertheless, manufacturers are lowering prices to move surplus inventory. This ongoing decrease highlights the continued frailty of demand according to Zavier Wong. He is a market analyst at the stock trading platform eToro.
However, until there is an increase in demand and price pressures reach a more even state China's recovery will remain inconsistent despite seemingly better headline figures Wong noted. Economic expansion decelerated to its rate in a year during the third quarter yet strong exports indicate China is likely to meet its yearly growth goal of about 5% this year as producers increase shipments to markets, outside the US.
China's trade surplus for the 11 months of the year surpassed $1 trillion surpassing the full-year record established in 2024 as the nation confronted persistent trade disputes and increasing economic protectionism globally. During a meeting earlier this month, the Politburo highlighted the expansion of domestic demand and the adjustment of supply structures as major economic targets, for 2026. The Politburo is the decision-making entity of the ruling Communist Party.
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