PPI shows modest recovery last month

Shoppers buy vegetables at a supermarket in Lianyungang, Jiangsu province. (GENG YUHE/FOR CHINA DAILY)

China's factory-gate prices edged up in November for the first time in six months, adding to signs that recent stimulus measures have bolstered industrial demand, though consumer inflation remained sluggish, officials and analysts said on Monday.

Going forward, bolder-than-expected interest rate cuts may consolidate the fledgling demand recovery while a near-term cut in banks' reserve requirement ratio is likely, analysts said, as a top-level meeting called for "moderately loose" monetary policy for the first time since the 2007-09 global financial crisis.

China's producer price index — which measures factory-gate prices — rose by 0.1 percent month-on-month in November, compared with a 0.1 percent drop in October, the National Bureau of Statistics said on Monday.

November's rise, albeit modest, marked the first positive reading since May, when the PPI rose 0.2 percent.

The year-on-year PPI decline also narrowed to 2.5 percent in November from 2.9 percent in October, the NBS said, the first improvement in five months, beating expectations of many analysts.

"A series of existing and incremental policies continued to show their effects. Real estate and infrastructure projects accelerated, sending prices of cement, nonferrous metals, steel and other industrial products higher," said Dong Lijuan, an NBS statistician.

"November's PPI showed improvement both year-on-year and month-on-month, reflecting the positive impact of a series of incremental policies on the production side," said Wen Bin, chief economist at China Minsheng Bank.

The NBS said prices within nonferrous and ferrous metal smelting and rolling processing industries rose 1.2 percent and 0.2 percent, respectively, month-on-month in November.

"However, with the consumer price index declining, domestic demand remains weak, consumer confidence is low and a negative output gap — when an economy produces below its potential — persists in the economy," Wen said.

The CPI, the chief gauge of consumer inflation, dropped 0.6 percent month-on-month in November, an eight-month low, versus a 0.3 percent drop in October, the NBS said, driven by lower food prices due to warmer-than-usual weather and reduced travel demand.

On a yearly basis, CPI growth fell to a five-month low of 0.2 percent in November and missed expectations. The core CPI, which excludes food and energy prices, rose 0.3 percent from a year ago in November, up from 0.2 percent in October, pointing to still lukewarm consumer demand that is improving slightly.

"The data highlight the fragile foundation for the recovery in industrial production and the need to ramp up countercyclical policy adjustments," Wen said.

On Monday, the Political Bureau of the Communist Party of China Central Committee held a meeting that analyzed and studied the economic work of 2025, which called for more proactive fiscal policy and moderately loose monetary policy, marking a shift from the "prudent" monetary stance that had been emphasized in recent years.

"This is the first time since the global financial crisis that the implementation of a 'moderately loose monetary policy' has been proposed. Monetary easing is expected to be stronger next year compared to this year," said Feng Jianlin, chief economist at Beijing FOST Economic Consulting Co.

"Given current levels of the RRR (averaging 6.6 percent) and interest rates — which are relatively high in real terms after factoring in inflation — they should see cumulative cuts of 50 basis points next year," said Lou Feipeng, a researcher at Postal Savings Bank of China.

"There is a possibility of larger reductions," Lou added. "These cuts are more likely to occur in the first half."

Lu Ting, chief China economist at Nomura, said his team expects a 50-basis-point RRR cut before the end of the year and two RRR cuts of the same amount in 2025.

Ming Ming, chief economist at CITIC Securities, said China's central bank is also expected to step up ultra-conventional easing policies, such as treasury bond purchases.

With that, inflation figures are expected to recover in 2025, though likely still subdued in December, Ming said, projecting a year-on-year average CPI growth for 2025 of 0.76 percent and PPI at 0.94 percent.