Pork prices plummet, causing deflationary pressure in China
China's deflation concerns resurface as plunging pork prices lead to an unexpected drop in consumer prices, raising doubts about the robustness of the world's second-largest economy
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China's consumer prices experienced a greater-than-anticipated decline last month, pushing the country back into deflation and raising worries about the robustness of the world's second-largest economy.
In October, the consumer price index (CPI) in the country decreased by 0.2% compared to the same period last year, as reported by the National Bureau of Statistics (NBS). This decline exceeded the 0.1% decrease forecasted by analysts in a Reuters poll.
The main factor contributing to this drop was the decrease in food prices, specifically pork, which has been steadily declining for several months. According to analysts at Goldman Sachs, pork prices have fallen by 30% compared to the previous year.
The surge in pork supply compared to the demand has caused downward pressure on pork prices. Being China's most commonly consumed meat, pork carries a significant impact on the consumer price index.
In October, core inflation, excluding the unstable categories of fresh food and energy, experienced an even steeper decline of 0.6%.
Economists argue that this is concerning as it indicates a lack of overall consumer demand. According to a note from Capital Economics sent to clients on Thursday, the latest data further strengthens the evidence of a renewed economic downturn.
Robert Carnell, regional head of research for Asia Pacific at ING, challenged the idea that China's economy was experiencing deflation, which economists define as a long-lasting and widespread decrease in the prices of goods and services.
In a Thursday report, he described deflation as a "harmful" condition where consumer prices, asset prices, and wages all decline, resulting in a drastic decrease in economic activity. He noted that China currently experiences a low level of inflation due to weak domestic demand.
The Xixi Campus of Alibaba in Hangzhou, Zhejiang Province of China is seen illuminated at night in preparation for the 'Double 11' shopping festival on October 31, 2023. (Photo by VCG/VCG via Getty Images)
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Singles Day: Chinas e-commerce giants try to lure reluctant consumers with truly low prices
In July, China experienced a brief period of deflation as the Consumer Price Index (CPI) dropped by 0.3%. However, consumer prices rebounded in August, indicating a recovery.
The nation is currently dealing with an inconsistent economic revival while facing various obstacles, including a struggling real estate market and increased hesitancy among certain businesses and consumers to invest or spend.
The world's largest annual shopping festival, Singles Day, is currently showcasing a negative sentiment. E-commerce players are resorting to offering substantial discounts in order to attract shoppers and encourage them to spend. Chinese suppliers of goods are also encountering difficulties, as indicated by a 2.6% decline in the producer price index for goods at the factory gate, according to NBS data.
The drop indicates the uncertainty regarding the strength of China's recovery, according to a report by HSBC Greater China economist Erin Xin. She also mentioned that policymakers will probably remain vigilant in providing support.
