China slipped back into deflation in October, official figures showed, as falling pork prices delivered a blow to the world’s second largest economy.
The consumer prices index, the main gauge of inflation, fell 0.2pc compared to the same month last year, according to the National Bureau of Statistics (NBS).
The reading was twice as big as economists’ expectations and marked a return to deflation, having recovered marginally in September and August from July’s 0.3pc drop.
Food, tobacco and alcohol prices recorded the largest falls in October, with the NBS saying pork in particular plunged 30.1pc.
NBS official Dong Lijuan said in a statement that the fall was linked to declining consumer demand following the mid-autumn holiday, as well as other factors including a high supply of agricultural products.
While deflation suggests goods were cheaper, it poses a threat to the broader economy as consumers tend to postpone purchases in the hopes of further reductions.
A lack of demand can then force companies to cut production, freeze hiring or lay off workers, and agree to new discounts to sell off their stocks – dampening profitability even as costs remain the same.
The slump into deflation in China amid falling pork prices is a story we have been told before.
China experienced a short period of deflation at the end of 2020 and early 2021, largely because of a collapse in the price of pork, the most widely consumed meat in the country. Prior to that, the last deflationary period was in 2009.
The NBS also said producer prices sank for the 13th month in a row, tumbling 2.6pc, against the 2.7pc forecast by economists, suggesting more weakness down the road.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the data showed that “domestic demand remains sluggish”.