BEIJING (Reuters) – China’s producer prices fell in annual terms for the fifth consecutive month in November while consumer prices spiked as food costs climbed, data showed on Tuesday, complicating policymakers’ efforts to boost demand as economic growth slows.
Sluggish manufacturing activity from U.S. trade pressures and weakening demand at home have put pressure on Beijing to roll out more stimulus to bolster its economy.
The producer price index (PPI), seen as a key indicator of corporate profitability, fell 1.4% on year, National Bureau of Statistics (NBS) data showed, falling for the fifth month in a row. That compared with a 1.5% drop forecast in a Reuters poll and 1.6% fall in October.
In contrast, consumer prices rose at their fastest pace in almost eight years, driven mostly by a surge in pork prices as African Swine Fever ravaged the country’s hog herds.
However, core inflation – which excludes food and energy prices – showed only modest pressure.
A milder fall in factory-gate prices in November than in previous months may have been helped by tentative signs of improvement in manufacturing activity, although economists have noted the recovery could be difficult to sustain.
Weak prices were mainly seen in oil and gas extraction and chemical fiber manufacturing sectors.
Beijing and Washington are negotiating a first phase trade deal aimed at de-escalating their trade dispute but they continue to wrangle over key details. But even if a deal is struck, economic growth is expected to continue slowing in the current and coming quarters, however. Government advisers said China should lower its growth target to around 6% in 2020 as the trade dispute remains unresolved.
Beijing has rolled out a series of measures to support growth, including reductions in market interest rates and including front-loading 1 trillion yuan ($142.1 billion) worth of local government special bonds issuance from the 2020 quota to this year. But the government has insisted it will not resort to “flood-like” stimulus, however.
CPI REMAINS ELEVATED
The consumer price index rose 4.5% in November from a year earlier, the fastest pace seen since January 2012, beating analysts’ expectations of 4.2% and October’s 3.8% rise.
The rise was driven largely by a continued surge in pork prices and other meats after the African Swine Fever killed a large portion of China’s pigs.
Wholesale pork prices have seen a slight reprieve in November but remain elevated compared with a year earlier. Pork prices more than doubled year-on-year in November, according to the statistics bureau.
Analysts expect pork will remain in high demand as China prepares to celebrate the Lunar New Year, the peak consumption period for the meat. Last week, the government’s finance ministry announced waivers for some purchases of U.S. pork and soybeans..
Climbing consumer prices are adding to the headaches of policymakers who are racing to meet Beijing’s annual growth target as the world’s second-largest economy slows to the lower end of a 6%-6.5% range for 2019.
However, core CPI for November remained benign at 1.4%, down from 1.5% in the previous month. For the full year of 2019, China is aiming for a CPI target of around 3%. It rose 2.8% in the January-November period.
Goldman Sachs (NYSE:GS) said in a recent note that China’s CPI target for 2020 is likely to be raised from the default 3% level. This is because CPI inflation is likely to be in the 4-5% range at the start of the year already, underscoring continued price pressures.