Food pushes up China's consumer prices in November

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China's Consumer Price Index (CPI) rose a tepid 1.5 percent in November from the same period a year ago, data released today showed. The number was slightly above a Reuters poll forecast of a 1.4 percent rise.

China's Producer Price Index (PPI) dropped 5.9 percent in November on-year, in line with a Reuters poll of economists, the data from the National Bureau of Statistics showed.

CPI was flat on the previous month, while economists had predicted a 0.1 percent fall, while PPI was down 0.5 percent on October.

The November rise in consumer prices was driven by an uptick in the cost of food. Food CPI was up 2.3 percent on-year, while non-food items rose 1.1 percent.

But China's producer prices fell as the manufacturing sector continued to stagnate, forcing companies to drop their wholesale prices in order to compete to stay in business.

Data released on Tuesday showed China's exports slumped more than expected in November, while the decline in imports slowed. It was the fifth straight month of falling exports.

Bill Adams, senior international economist at PNC Financial Services, noted that the on-year fall in producer prices was not just widespread across industrial goods such as petrochemicals and petroleum, but also in value-added international goods, including autos and computers.

Adams said that the falls in tradeable goods prices would put pressure on China's government to let to yuan devalue further, because a weaker currency would put upward pressure on yuan-denominated prices of tradeable commodities and manufactured products and ease deflationary risks."

The People's Bank of China Wednesday set the mid-point rate for the yuan at the lowest level in more than four years.

Tom Rafferty, Asia economist for The Economist Intelligence Unit in Beijing, however, saw positive signs in the CPI number, which he said pointed to underlying strength in consumer demand. Rafferty said PPI's steep falls would likely moderate in the coming months, but it would be "some time before we see a better alignment between supply and demand in the industrial sector."

"Overall the data is in line with our view that the interest rate cutting cycle has come to a close," Rafferty said in a research note.

"Supportive policy measures and a property market upturn will help to stabilise domestic demand in 2016, so there should be less pressure to loosen monetary policy further, which in any case has tended to have the effect of compounding excess capacity problems in the industrial sector by extending credit to troubled firms. We expect fiscal policy to remain expansionary, however."

- Reuters contributed to this report.