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China’s inflation drops significantly in October

China’s inflation drops significantly in October

China today announced data on inflation rates from the point of view of consumers and producers during the month of October, showing a significant decline compared to the readings for September, while the Chinese yuan continued to maintain its gains against the dollar.

The annual consumer price index in China rose 0.5%, less than the previous reading, which was higher by 1.7%, while expectations had indicated a rise of 0.8%, while the annual producer price index decreased by 2.1%, the same value of the previous reading, whilst expectations were 1.9%.

Consumer inflation fell to its lowest level in 11 years as pork prices slipped after a year and a half of sharp increases, oil and gas extraction prices slumped 4.9% month over month in October and fuel processing costs plunged 1.6%.

Weak inflation contrasts with the rapid growth in exports and manufacturing activity, which are seen as signs of a sustained recovery in the Chinese manufacturing sector. Chinese economic growth accelerated to 4.9% year-on-year during the third quarter, as activity extended its recovery from a record decline at the beginning of the year.

A gradual recovery in household consumption may support an upward trajectory in CPI inflation next year, but the prospect of CPI contraction in the coming months is likely to prevent the Chinese central bank from tightening its policy stance by the end of the year.

As for the Chinese yuan, it maintained its gains against the dollar after it recorded its highest level since mid-2018 at 6.5628 per dollar yesterday, where it traded today around the 6.60.

This rise in the levels of the Chinese yuan comes after Democratic candidate Joe Biden won the US presidency, which increased the chances of improving relations between China and the United States. 

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