A shopper checks out laundry products at a supermarket in Fuyang, Anhui province. [Photo by Lu Qijian/For China Daily]

Expected uptick in services sector to cushion declining food prices” effect

China’s consumer inflation eased to the lowest level since 2009 in October on the back of falling food prices, the National Bureau of Statistics said on Tuesday.

While the country’s inflation is likely to drop further in the coming months, analysts said the decline does not mean that China’s economy is facing the risk of deflation or disinflation as the steady recovery of the Chinese economy and the expected price rise in the services sector could help offset the negative effect of falling food prices.

China’s consumer price index, a main gauge of inflation, rose by 0.5 percent on a yearly basis in October, declining by 1.2 percentage points from September.

Dong Lijuan, a senior statistician with the NBS, said that the fall in the CPI growth rate was mainly due to the high comparison base in the same period of last year and falling pork prices, which declined by 2.8 percent on a yearly basis in October. Prices of eggs dropped substantially by 18.3 percent year-on-year, while chicken prices fell by 13.2 percent on a yearly basis, according to the NBS.

The core CPI, which excludes volatile food and energy prices and better reflects long-term inflation trend, remained unchanged from September at 0.5 percent year-on-year in October.

The producer price index, which measures the cost of goods at the factory gate, edged down by 2.1 percent year-on-year in October. The PPI inflation was below market expectations and remained unchanged from the previous month.

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Wu Chaoming, deputy head of the Chasing Institute under Chasing Securities, said that China’s CPI is unlikely to turn negative and will likely fluctuate between zero and 1 percent in the coming months as the continuous economic recovery and resumption of business activities in the services sector will help shore up consumer prices and offset the negative effects of falling food prices.

The lower-than-expected PPI data was mainly due to the escalation of the COVID-19 cases in the overseas markets and depressed external demand, which resulted in continuously low commodity prices, Wu said.

“We expect headline CPI inflation to drop further toward 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,” Lu Ting, chief China economist with Nomura Securities, said in a research note.

Lu said that the decline in CPI inflation does not mean China is experiencing disinflation or deflation as the drop was mainly driven by pork prices, which was due to the high base as a result of the African swine fever, sequentially weaker pork prices and the increased weighting of pork in the CPI basket.

Lu added that he did not anticipate that the People’s Bank of China, the central bank, will change its existing monetary policy stance in response to the decline of the consumer inflation.

China’s economy grew by 4.9 percent year-on-year in the third quarter. The country has been projected by major international organizations to be the only major economy to record growth this year. The International Monetary Fund forecast in its latest economic outlook that China’s GDP will expand by 1.9 percent this year.

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Via China Daily