China falls back into deflation as pork prices tumble

(Sharecast News) - China fell back into deflationary territory in October as pork prices slid, according to data released on Thursday by the National Bureau of Statistics. The consumer price index fell 0.2% versus the same month last year, and compared to expectations for a 0.1% decline. The data showed that pork prices tumbled 30.1%.

Meanwhile, the producer price index declined by 2.6% on the year in October following a 2.5% drop in September.

Core inflation - which excludes volatile elements such as food and fuel - fell to 0.6% from 0.8%.

Robert Carnell, regional head of research, Asia-Pacific, at ING, argued that China is not dealing with deflation, but rather "low underlying inflation".

He said: "Let's be very clear about what deflation is and what it isn't. It is a very pernicious situation, where the 'general price level' which includes consumer prices, but also other prices such as real and financial assets and money wages decline. And it leads to a sharp slowdown in economic activity as it deters consumer spending and investment.

"What China has right now, is a low rate of underlying inflation, which reflects the fact that domestic demand is fairly weak. What today's data show is that it doesn't take much of a negative shock from one of the components to push a low underlying headline inflation rate below zero on a year-on-year basis.

"If you want to use any term 'disinflation' would be my preference, but what we are seeing today is mainly the result of a supply excess, rather than a collapse in demand."