China October CPI +0.3% y/y (expected +0.4%, prior +0.4%), deflation prospect lingers

October 2024 CPI rose 0.3% year-on-year, down from 0.4% in September, and below economists’ median expectations of 0.4%:

• Shows continued weak consumer demand and keeps deflation concerns active. China faced deflation for four months at the end of 2023.

On the PPI:

• Factory-gate prices -2.9% in October, falling from September’s -2.8% and much worse than economists’ median expectations of -2.5%
• the deflationary trend in wholesale prices has continued since late 2022

Government Response:

• Lawmakers announced a plan to address local government debt on Friday: China’s top lawmakers approve plan to swap local government debt
• Markets were not pleased (as usual): Chinese yuan falls as NPC announcement lacks oomph so far
• More broadly: The optimism in the Chinese market yesterday was baffling
• Earlier measures in September included:
  • Interest rate cuts
  • Relaxed home purchasing restrictions
• Premier Li Qiang expressed confidence in meeting 5% growth target for 2024

The background to all this are the economic challenges the country faces:

• Property crisis persisting, and persisting. This is impacting consumer confidence
• Slowest economic expansion in 18 months during Q3
• Potential future concerns about U.S. tariffs under incoming Trump presidency
• There are suggestions, which seem well-founded, that there is need for more consumer-focused stimulus measures. Both to boost domestic demand and avoid adding to industry overcapacity pressure, which is contributing to deflation pressure

This article was written by Eamonn Sheridan at www.forexlive.com.