Pork prices in China will remain low

CHINA has spent much of the past year battling falling prices, unlike many other parts of the world where central banks are instead focused on containing inflation. Consumer prices in China fell at the fastest pace in three years, while producer costs fell further, highlighting the challenges facing the economic recovery.

The consumer price index fell 0.5% last month from a year earlier, the National Bureau of Statistics said in a statement on Saturday. That's the biggest drop since November 2020 and less than the 0.2% drop economists had forecast in a BLOOMBERG survey .

Producer prices fell 3%, compared with a forecast of a 2.8% fall. Factory costs have been mired in deflation for 14 straight months. Bloomberg Economics expects deflationary risks to persist into 2024 as there are not enough catalysts to counteract the housing market slump, which is suppressing demand and weighing on prices.

Deflationary pressures have increased due to weak domestic demand, said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd. "This underscores the importance of more accommodative fiscal policy."

Economists say it is too early to call a growth day, with some predicting further pressure on the economy in 2024 due to ongoing challenges from the real estate sector. The weak performance of the consumer price index is partly explained by the fall in pork prices. Abundant hog supplies and sluggish consumption are putting pressure on the market, prompting the government to take action to support prices. MEAT occupies a large share of China's CPI basket due to its popularity among local diners.

The so-called core consumer price index, which does not take into account volatile food and energy prices, rose 0.6% year-on-year in November, matching the previous month's performance.

China has set an annual inflation target of around 3% this year, but it is almost certain to miss it. Economists are mixed on the outlook for 2024, with some saying consumer prices could rise by around 1% as sentiment improves and others saying deflation will continue into the first half of the year.

Strong fiscal stimulus will be a vital part of China's policy goals next year, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. These measures "will have to strike a balance between stimulating investment and consumption and limiting debt risks."