China Falls Deeper Into Deflation, Asia Sees Easing Price Pressures

China’s November CPI and PPI data were released on Saturday and came in below expectations due to lower food and fuel prices, as pork and global energy prices fell. Headline CPI fell 0.5% y/y down from October’s -0.2% and the PPI -3% y/y down from -2.6%. Core CPI was steady at 0.6% y/y. The December Politburo statement backed further fiscal support at an “appropriate pace”, which may help take some of the downward pressure off prices. Asian inflation pressures generally eased in November.

China CPI y/y%

Source: MNI - Market News/Refinitiv

• China’s deeper move into deflation brought our non-Japan Asian CPI estimate for November down to 1.4% y/y from 1.6%, the lowest since early 2021. Excluding China headline inflation is a lot higher at 3.8%, up 0.1pp, but still above most central bank targets. The region generally saw lower headline inflation, except Indonesia where higher food prices drove it higher. We assume that inflation is unchanged for the countries that are yet to release their data.
• Core inflation has continued to move lower across the region and is more muted than headline. Including China non-Japan Asian underlying CPI inflation moderated 0.1pp to 1.1%, and excluding China 0.2pp to 2.6%, the lowest since early 2022 and close to target. Most Asian central banks are currently on hold but remain alert to inflation and FX volatility and so are yet to shift to an easing bias.