(Economic Observation) What does it mean that China’s CPI in November changed from a year-on-year rise to a fall?

  China News Service, Beijing, December 9th (Reporter Wang Enbo) The National Bureau of Statistics of China announced on the 9th that China's consumer price index (CPI) fell 0.5% year-on-year in November.

In the context of economic stability and recovery, why has the CPI rarely changed from rising to falling?

  In fact, since the second half of last year, China's CPI has continued to rise due to rising food prices, and it did not begin to fall until the beginning of this year. This high base effect has already predicted that CPI growth will continue to fall in the second half of this year.

  The recent lower CPI is also due to changes in food prices.

In November, as China's various regions and departments continued to promote the "six stability" and "six guarantees", the prices of important livelihood commodities such as pork continued to fall.

  That month, the year-on-year increase in food prices changed from a 2.2% increase in the previous month to a decrease of 2.0%, which affected the CPI drop by about 0.44 percentage points, which was the main reason for the change in the CPI.

Among them, the price of pork fell by 12.5% ​​year-on-year, which was an increase of 9.7 percentage points from the previous month. This alone affected the CPI drop by approximately 0.6 percentage points.

  However, the PPI has not yet turned positive, and the CPI is now showing negative growth, which makes some people worry about "deflation".

According to Wen Bin, chief researcher of China Minsheng Bank, there is still no basis for judging that China's economy has fallen into deflation.

  On the one hand, CPI is still dominated by changes in food prices, and food prices are mainly dominated by pork prices. The rise in the inflation center last year and the fall in the inflation center this year are basically caused by changes in food prices caused by changes in pork prices.

Excluding food and energy, the core CPI can better reflect the real needs of the economy. In November, the core CPI increased by 0.5% year-on-year, the same rate of increase for 5 consecutive months, indicating that effective demand after the impact of the epidemic is still relatively stable.

  On the other hand, as China's economy continues to improve and supply and demand are gradually improving, the trend of PPI restoration is becoming clearer, which will help improve corporate profits, boost market confidence, and further increase effective demand.

  On the whole, Wen Bin emphasized to reporters that there is no basis for deflation in China, and the negative growth of CPI is mainly caused by the high base effect and the fall in food prices, which should not be over-interpreted.

  Zhu Jianfang, chief economist at CITIC Securities, also pointed out that the year-on-year decline in overall CPI in November did not affect the stability of core inflation, and the service industry CPI increased by 0.3% year-on-year, showing no downward trend.

  He also mentioned that in the non-food price of the month, the growth rates of core services such as clothing processing services, family services, education, culture, entertainment, and medical services were 0.1%, 0.2%, 0.6%, and 0.1% respectively. Similar to the upward trend in consumption, demand in the residential sector has recovered relatively stable.

"The performance of core, service industry and non-food CPI proves that the fundamentals of China's economy are still in a steady recovery phase."

  In fact, Chinese officials have expressed considerable confidence in the stability of prices.

  The Bank of China’s previous report on the implementation of China’s monetary policy for the third quarter of 2020 also pointed out that it is initially estimated that the average annual CPI increase will be within a reasonable range.

In the medium and long term, China's economy is generally stable, with total supply and demand basically balanced, supply-side structural reforms are intensified, the role of market mechanisms is better played, monetary policy remains sound, monetary conditions are reasonable and appropriate, and there is no basis for long-term inflation or deflation.

  Regarding subsequent price trends, Lian Ping, chairman of the China Chief Economist Forum, believes that after a year-on-year negative growth, China's CPI will gradually rise to a positive level, driven by the global economic recovery and further domestic demand.

  Looking forward to 2021, he said that as China's economy gradually enters a trending track, the overall level of prices will return to economic fundamentals and maintain a modest upward pattern.