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China November Consumer Inflation Eases to 2.4%
data analysis
Dec 7,2009

BEIJING, Dec. 11 -- China's consumer price index (CPI), the main gauge of inflation, rose at a slowing annual rate of 2.4% in November, the National Bureau of Statistics (NBS) said here on Thursday.

    Rises in the CPI have now slowed for seven straight months because of a sharp fall in world commodity prices and sluggish demand amid the global financial crisis.

    The CPI figure, compared with 4% in October, 4.6% in September, 4.9% in August and a nearly 12-year-high of 8.7% in February, was broadly in line with most forecasts.

    It was the smallest CPI increase since January 2007, which saw the index rising by 2.2% at an annualized rate.

    Food prices, which account for more than a third of the CPI calculation and have been the main driver of inflation since last year, climbed 5.9% in November from a year earlier, down from 8.5% in October and 9.7% in September.

    Prices of non-food items, the other two-thirds of the CPI calculation, edged up 0.6% last month, said the NBS.

    From January to November, the inflation indicator rose 6.3% year-on-year, 6.0% for urban areas and 6.9% for rural regions, the NBS said.


    Zuo Xiaolei, China Galaxy Securities chief economist, said the inflation reading last month was within expectations.

    "The price of food rose just by 5.9% last month. In previous months, it jumped by as much as 10-20%. The rise in food prices has decelerated significantly," she told the Chinese financial website

    "In addition, the influence of a tail-raising factor is insignificant. It has something to do with previous policy adjustments," she said.

    The "tail-raising factor" refers to a basis of comparison. An unusually large or small figure can make subsequent changes appear better or worse by comparison.

    China experienced inflationary pressure between late 2006 and early this year, which forced the government to take steps to curb inflation. In 2007, the CPI rose 4.8%.

    Zuo said that in recent months, lower world prices of commodities and raw materials such as crude oil, corn and soybeans, which resulted in a lower producer price index (PPI), also kept down the CPI.

    The NBS said Wednesday that China's PPI, a measure of inflation at the factory gate, decelerated sharply to an annual rise of 2% in November. It was the slowest pace of increase in the PPI since May 2006.

    Weaker investments and demand also restrained inflation, Zuo said.

    Zhang Yansheng, director of the International Economic Research Institute, which is part of the National Development and Reform Commission, echoed those views.

    Both international and domestic demand were falling quickly amid the global financial crisis, he told Xinhua. In addition, the tight economic policies pursued before the financial crisis were having a delayed impact that has coincided with the global downturn, he said.

    Continuously weakening demand over the past several months was showing up in the data, he added.

    On Wednesday, the General Administration of Customs said exports totaled USD 115 billion last month, down 2.2% year-on-year in the first monthly decline since June 2001.

    Sharp declines were recorded on the import front last month. Imports were worth USD 75 billion, down 17.9% year-on-year and down 19.5% month-on-month.

    November's total trade volume stood at USD 189.89 billion, down 9% year-on-year, customs figures showed.


    Zuo, of China Galaxy Securities, forecast that China's CPI would edge down further in December because there would be no "tail-raising factor" this month and prices of most products would continue to decline.

    For all of 2008, she said inflation would rise by less than 5%, which was close to the 4.8% target set by the government earlier this year.

    As inflation continued to decelerate, Zuo said worries over deflation had become rational.

    "We need to stimulate the economy. If the macroeconomic policies buoy growth successfully, deflation won't inflict much pain on the economy. Without proper policy support, deflation is highly possible," Zuo said.

    Chen Wenzhao, an analyst with China Merchants Securities, agreed. Prices of non-food items edged up only by 0.6% last month, which was far less than market expectations of about 1.3%, he said.

    "Such a low increase signals that we will probably encounter deflation," he said. In October, prices of non-food items rose by 1.6%.


    China has undergone several major economic ups and downs since its reform started 30 years ago. Each featured overheating, partly resulting from decentralization, pricing policy shifts or forex system reform.

    There were four major periods of inflation and one serious period of deflation. Several price spikes, some in the double digits, accompanied stages in state de-control. The highest CPI rise was 24.1% in 1994.

    There were even two bouts of deflation. One was in 2002, when prices fell 0.8% amid a restructuring of state-owned enterprises in which many Chinese lost their jobs and cut their spending. The other bout of deflation was in 1998-99 amid the Asia crisis.


    Both the CPI and PPI are expected to continue their downward movement in the next two or three quarters and the economy could probably face mounting deflationary pressure in the first half of next year if the government fails to boost domestic consumption, Chen added.

    The government has taken a series of aggressive measures to stimulate the world's fourth-largest economy. In one of the most significant moves, China on Nov. 9 announced a stimulus package estimated at RMB 4 trillion (USD 586 billion), to be spent over the next two years.

    On Wednesday, the three-day Central Economic Work Conference, which gathered the country's top leaders, ended here with a pledge to maintain stable, healthy growth next year through domestic demand expansion and economic restructuring.

    The economy slowed in the third quarter because of declining export and investment growth. Gross domestic product grew at an annualized rate of 9% in the third quarter, down from 10.1% in the second quarter and 10.6% in the first quarter.

    (Source: Xinhua)

China economy macroeconomy
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