• China is close to first consumer price deflation since 2009

Market news

8 December 2020

China is close to first consumer price deflation since 2009

Bloomberg reports that China could post its first year-on-year decline in consumer prices in over a decade, but that trend is likely to be short-lived and have limited impact on monetary policy.

The official consumer price index hasn’t posted a negative reading since 2009. A government report due Wednesday will likely show zero inflation in the economy in November, according to the median estimate of economists.

Unlike the earlier deflationary period, the slowdown in consumer prices this time around is mainly being driven the price of a single commodity: pork. After soaring last year when outbreaks of African Swine Fever reduced production of the country’s most popular meat, pork prices have gradually eased in recent months, eventually declining in October for the first time since 2019. The meat is heavily weighted in the basket used to calculate the consumer price index and so its price affects the broader index.

But like last year’s surge, the drop in pork costs and broader consumer prices will likely be temporary. Consumer spending has shown signs of growth in recent months, while producer price deflation has been easing since June as China’s economy began to recover from shutdowns due to the coronavirus pandemic.

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