China's CPI data was released this morning, with results showing an unexpected decline to +2.1% YoY in October, while consensus estimates call for +2.1% growth in year-on-year vs. 2.4% year-on-year.
The CPI (Consumer Price Index) therefore fell sharply compared to the previous month, when it had reached its highest value for 29 months at +2.8% per year.
On a monthly basis, however, inflation only increased by +0.1% against +0.3% expected.
The sharp drop is mainly due to the sharp decline in food prices, which rose by +7% year-on-year but slowed from +8.8% in September, while prices for fresh vegetables fell of +8.1% year-on-year, compared to +12.1% year-on-year in September.
Despite this, pork prices, a key component in measuring China's CPI, rose +51.8% yoy, beating September's reading by +36% yoy.
The data shows that aggregate domestic demand has been particularly affected by the resumption of Covid-19 cases. Indeed, nearly three years after the first case, China is still openly fighting the spread of the virus due to an inadequate vaccination campaign and the ineffectiveness of vaccines even from its own production.
Additionally, the Beijing government's stubbornness to pursue a zero-tolerance policy for Covid cases has meant that the country has suffered numerous lockdowns that do not allow citizens to move freely and therefore undermine economic growth. Indeed, a study by the International Monetary Fund last month predicted a slowdown in Chinese growth to +3.2% for 2022, down 1.2 points from the previous forecast in April.
However, the Producer Price Index (PPI) also fell -1.3% YoY (-1.5% YoY expected), the lowest since December 2020, due to weak demand both nationally and internationally. Last month's figure was positive at 0.9%.
Coal mining prices fell -16.5% y/y (-2.7% y/y in September), while ferrous metal processing prices fell -21.1% y/y (- 18% YoY in September). .
Prospects of a global economic slowdown have eroded the growth of the Asian giant, whose trade balance has shrunk on both the import and export side.forecasts
China is in deep trouble right now, under pressure on multiple fronts. The slowdown in the global macroeconomic scenario is reducing demand for its products and weighing on its trade balance. Additionally, the national economy is constantly slowing down due to lockdowns due to new Covid-19 cases.
Finally, the country is also grappling with a shrinking real estate sector (after a massive decade-long expansion), while the yuan has depreciated nearly 15% since January due to the continued strength of the US dollar. .
However, we believe that inflationary pressures are not China's primary concern. Indeed, the country could experience deflationary pressures, which should persist in the first half of 2023, in line with the general slowdown in the macroeconomic scenario.