A month on and China’s trade picture for October was weaker than that in September, and its consumer price inflation fell from last month as well. And producer prices remain stuck deep in deflation.
In fact the wider economy is showing signs of disinflation (slowing inflation) apart from the still depressed manufacturing sector which remains gripped by intense price weakness.
And, like September, it was another slowdown in food prices that saw Chinese consumer price inflation fall last month to an annual rate of 1.3%.
That was the slowest rate since May and on a month-to-month basis inflation fell by 0.3%, the first negative reading also since May.
Economists had forecast a 1.5% annual rate, after the 1.6% reading in September – all are half the target rate from the government of around 3%.
It is further confirmation that reflects weaker demand and also a fall in pork prices which was the culprit responsible for the mid year jump in consumer inflation.
Food prices rose 1.9% in October, down from 2.7% in September and 3.7% in August. Non-food inflation eased to just 0.9% from a 1% growth rate.
But the big concern remains the intense deflation in the country’s huge producer sector – it remained at a negative reading of 5.9% in October, the third month in a row that it has been at this level and the 44th month in a row of deflation.
That reflect the excess supply of housing materials and raw materials and overcapacity in heavy industry in many sectors of manufacturing.
But after six interest rate cuts in less than a year and a string of cuts to the reserve requirement for banks to boost the amount of money available to lending, Chinese inflation and growth is no better than it was at the start of the year.
More stimulus is needed to secure Beijing’s growth target of no less than 6.5% a year for the next five years (down from 7%) to help the economy transition from investment to consumption driven growth.
October’s trade figures disappointed, with exports falling 6.9% and imports down 18.8%.
Later today data on industrial production, urban (especially property) investment and retail sales will be released.
