Stay informed with free updates

Just register China’s economy myFT Digest – delivered straight to your inbox.

China’s economy slipped back into deflation last month, spurred by falling pork prices, as policymakers work to revive domestic demand after a spreading crisis in the real estate sector and the end of strict epidemic controls this year.

Data released by the National Bureau of Statistics on Thursday showed that the consumer price index fell by 0.2% year-on-year in October, while analysts polled by Reuters had forecast a decrease of 0.1%. CPI was flat in September.

Producer prices fell for the 13th consecutive month, falling 2.6% on the year, compared with economists’ forecast of a 2.7% decline and a 2.5% decline in September.

The National Bureau of Statistics said that livestock and meat prices fell by 17.9% overall, with pork prices falling by 30.1%. Non-food prices rose 0.7%.

On Thursday, China’s market reaction was muted. After the data was released, the CSI 300 index was flat and the yuan fell 0.1% against the US dollar.

China’s economy has shown mixed signs of recovery in recent months, leading economists to debate whether the country can hit the government’s official 5% gross domestic product growth target this year, its lowest in decades. level. Prices fell into negative territory in July before recovering in the following months.

The International Monetary Fund this week raised its GDP growth forecast for China to 5.4%, citing stronger support from policymakers, who have been easing monetary policy and restrictions on home purchases and mortgage lending to stabilize the housing market. .

Analysts blamed the weak inflation data on sluggish consumer confidence. Falling pork prices in October exacerbated this trend. Hog futures traded on China’s Dalian Commodity Exchange have fallen about 15% this month.

As the world’s largest pork producer and consumer, China’s meat prices follow a boom-and-bust cycle. Oversupply causes prices to fall sharply, triggering CPI fluctuations.

Goldman Sachs said in an analyst note that China’s overall CPI should gradually rise in the coming months, although “ongoing pork price deflation may slow this pace.”

ING economist Rob Carnell disputes the notion that China is suffering from deflation, which he defines as a fall not just in consumer prices but also in “physical and financial assets.” and a fall in wages” prices.

“China’s current underlying inflation rate is low, which reflects quite weak domestic demand,” he said. “What we’re seeing today is primarily the result of excess supply rather than a collapse in demand.”

Other recent indicators paint a mixed picture of the economic recovery. In U.S. dollar terms, China’s exports fell 6.4% in October compared with the same period last year, marking the sixth consecutive decline and worse than the 3% decline predicted by a Reuters poll of analysts. Manufacturing activity also shrank in October.

One positive sign from the trade data was that China’s imports increased by 3% annually for the first time since February.

Economists believe the government needs to do more to stimulate domestic consumption and boost sluggish demand in the economy.

Beijing has announced a 1 trillion yuan ($137 billion) bond issuance to fund local government disaster relief and flood prevention, but this is seen as aimed at supporting economic growth next year.

Analysts warn that while the economy in 2023 will benefit from a lower base effect compared with the previous year, when Covid-19 takes control of subdued economic activity, GDP growth may face greater challenges next year unless the recovery gains momentum motivation.

Additional reporting by William Langley and Hudson Lockett in Hong Kong