Fears of deflation as CPI eases
Print Edition
CHINA’S inflation rate eased further in November but this moderation sparked fears of deflation and hopes of more aggressive policy relaxation.
The Consumer Price Index, the main gauge of inflation, added 1.4 percent from a year earlier last month, the slowest in more than five years and down from the 1.6 percent rise in October, data from the National Bureau of Statistics showed yesterday.
The Producer Price Index, the factory-gate measurement of inflation, eased 2.7 percent last month, down further from the fall of 2.2 percent in October.
Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, warned that China has entered a rapid dis-inflation process with rising deflation risk.
“China’s slowing inflation is a reflection of weak growth momentum,” Zhou said. “The PPI deflation clearly suggests that Chinese corporations are struggling amid the economic slowdown.”
The PPI has remained negative for 33 consecutive months, and the CPI fell to the lowest level since the global financial crisis.
Zhou said that as inflation growth slows further, there is more urgency for the government to launch more aggressive policies.
“While the soft inflation profile points to more aggressive policy easing, the Chinese central bank has remained hesitant in cutting the reserve requirement ratio,” Zhou said.
“But as the previous efforts have proven to be not so effective, we believe a RRR cut is around the corner.”
Meanwhile Wang Tao, an economist at UBS, said the rapid disinflation and increasing deflationary pressure in China will push up real interest rates and compel more rate cuts.
“We expect at least two more cuts in benchmark lending rates totaling 50 basis points by the end of 2015,” Wang said. “We also continue to expect RRR cuts as well as capital outflows or regulatory changes such as adjusting loan-to-deposit ratios.”
China’s economy grew 7.3 percent from a year earlier in the third quarter, the slowest pace in more than five years.
In the first 11 months, China’s CPI rose 2 percent year on year, below the target of 3.5 percent for the whole year.
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