China Factory, Consumer Inflation Slows Amid Weakening Demand

(Bloomberg) -- China’s factory inflation slowed further amid weakening demand, while gains in the consumer price index moderated.

• The producer price index climbed 2.7 percent in November from a year earlier, the slowest pace in more than two years. The consumer price index rose 2.2 percent, slower than estimated

Key Insights

• Weaker factory prices add to evidence that demand remains sluggish despite stimulus measures to cut personal income taxes and support private sector financing. This could signal a further deceleration of industrial profits.
• Tame inflation gives China’s central bank some room for maneuver should easier monetary policy be required. The space is limited though, as the yuan is vulnerable to downward pressure.

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  What Our Economists Say...

  Leading indicators suggest price pressures will continue to moderate going forward. The input and output price components in both the official and Caixin manufacturing purchasing managers’ index data declined in November. -- Chang Shu and Justin Jimenez, Bloomberg Economics. Read the full note here.

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• Core inflation, excluding food and energy prices, remained stable at 1.8 percent
• The fall in global oil prices was the main driver of the slowdown in PPI inflation, according to Bloomberg Economics

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