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December 11, 2017

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Drop in food prices drags down CPI

CHINA’S consumer inflation slowed more than expected in November, and producer inflation at the factory gate slowed to a four-month low, leaving room for prudent monetary policy to be maintained.

The Consumer Price Index, a main gauge of inflation, rose 1.7 percent year on year in November, down from October’s 1.9 percent and missing the market forecast of 1.8 percent, the National Bureau of Statistics said on Saturday.

The CPI has grown at less than 2 percent for 10 straight months, pointing to mild inflation in the world’s second-largest economy.

The bureau’s statistician Sheng Guoqing attributed the slowdown in CPI to a decrease in food prices, which account for a significant part of the CPI calculation.

Food prices fell 1.1 percent in November year on year, 0.7 percentage points more than the decline registered in October. Pork prices slumped 9 percent, dragging down the CPI growth by 0.25 percentage points.

On a month-on-month basis, food prices fell 0.5 percent. Prices of pork, aquatic products and fresh vegetables declined on abundant supply. Costs of beef, lamb, egg and fresh fruit rose on rising demand.

Non-food prices edged up in November on both a yearly and monthly basis. Non-food costs rose 2.5 percent year on year, 0.1 percentage points higher than the increase posted in October. The costs of health care, housing and culture and entertainment led the gains.

On a monthly basis, non-food prices gained 0.1 percent. Fuel and diesel prices rose more than 3 percent. Clothing costs increased 0.7 percent.

The Producer Price Index rose 5.8 percent in November from a year earlier — the lowest since July — as factory activity softened due to the government’s ongoing efforts to curb pollution.

The rise was slightly less than market expectations and compared with the previous month’s 6.9 percent increase. Analysts had predicted the PPI in November would rise an annual 5.9 percent, easing back also because of a high base a year earlier.

“The environmental protection drive could affect production of middle and low-stream firms, easing demand for raw materials,” said Wen Bin, an economist at China Minsheng Bank. “Looking ahead, producer price inflation is likely to slow steadily partly due to the high base effect.”

On a month-on-month basis, the PPI rose 0.5 percent in November.

As north China officially entered the heating season in mid-November, the government has stepped up efforts to address winter smog, ordering many steel mills, smelters and factories to curtail or halt production to rein in pollution.

Analysts expect producer price pressures to recede as the war on smog curtails production, cooling demand from factories for raw materials.

Prices of raw materials rose 7.5 percent in November year on year, compared with 9 percent in October, data from the statistics bureau showed.

Compared with a month ago, factory-gate prices grew faster in oil and natural gas developers and ferrous metal producers. Costs increased at a slower pace in oil processing and chemical-producing industries.

Analysts said the mild inflation will not change the central bank’s monetary stance.

China set the tone of its 2017 monetary policy as prudent and neutral, keeping appropriate liquidity levels but avoiding excessive liquidity injections.

China has defied market expectations with economic growth of 6.9 percent in the first nine months of the year.


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