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While most of the advanced world is struggling with inflation, China has the opposite problem.
The world’s second-largest economy has dropped further into deflation territory, with consumer prices falling last month, new data released last weekend shows.
China’s consumer price index (CPI) dropped 0.5% on a monthly basis in November, showing that prices of a basket of goods and services fell compared with October.
CPI was also 0.5% lower on an annual basis, China’s National Bureau of Statistics (NBS) reported, which is the steepest drop since November 2020.
The drops have disappointed investors, as they indicate rising deflationary pressures as domestic demand remains subdued.
China has already dropped into deflation back in August, before prices rose again in September – but that recovery proved temporary, with prices also having dropped in October.
Zhang Zhiwei, the chief economist at Pinpoint Asset Management, said deflationary pressures have increased because of weak domestic demand, adding: “This highlights the importance of more supportive fiscal policy.”
In another sign of deflation, China’s manufacturers are cutting prices too. China’s producer price index fell 3% year-on-year, compared with October’s 2.6% drop, which is the 14th decline in a row.
The data, released last weekend, has knocked stocks today. China’s CSI 300 index, which tracks stocks on the Shanghai and Shenzen exchanges, fell as much as 1.4%.
But the economic picture may be brightening in the UK, after a troubled year.
The manufacturing body MakeUK has reported a pick-up in business confidence.
And encouragingly, manufacturers reported that export orders surpassed domestic orders for the first time in four years. That suggests that companies are taking advantage of either faster growing or new markets.
Meanwhile, the UK’s housing market is also undergoing a bout of deflation.
Rightmove has reported that the average asking price of a UK home tumbled by nearly £7,000 in December, to £355,177, a drop of 1.9%.
Rightmove also reports that average asking prices set by new sellers are 1.1% lower than a year ago, with the number of sales agreed this year around 13% lower than the same period in “the more frenetic” 2022.
Prices in seven out of 11 regions are higher than a year ago, Rightmove reports, adding: "The north-west leads the way, up by 1.5% compared to last year, while the south-east is the worst performer at 3.7% below 2022."
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