China's Factory-Gate Prices Rise in November, Stimulus Measures Show Impact, But Consumer Inflation Remains Weak

China's factory-gate prices edged up in November for the first time in six months, signaling a potential recovery in industrial demand due to recent stimulus measures. According to the National Bureau of Statistics (NBS), the Producer Price Index (PPI) rose by 0.1% month-on-month, reversing a 0.1% decline in October. This marks the first positive reading since May, when the PPI increased by 0.2%. The year-on-year PPI decline also narrowed to 2.5% in November, improving from October's 2.9% drop, signaling a modest recovery in industrial sectors.

The rise in PPI was driven by a boost in prices for industrial products like cement, nonferrous metals, and steel, which saw increases due to accelerating real estate and infrastructure projects. Dong Lijuan, a statistician at the NBS, attributed the price hikes to the impact of these policies.

However, despite the industrial gains, consumer inflation remains sluggish. The Consumer Price Index (CPI) dropped 0.6% month-on-month in November, its steepest decline in eight months. The drop was driven by lower food prices, aided by warmer-than-usual weather and reduced travel demand. On a yearly basis, CPI growth slowed to just 0.2%, marking a five-month low and falling short of analysts' expectations.

The weak consumer demand underscores the challenges to broader economic recovery, according to analysts. Wen Bin, chief economist at China Minsheng Bank, noted that while industrial production shows some signs of life, consumer confidence remains low. He warned that a negative output gap — where the economy is underperforming relative to its potential — continues to be a concern.

In response to these ongoing challenges, the Chinese government is shifting its monetary policy. A key meeting of the Political Bureau of the Communist Party called for "moderately loose" monetary policy for the first time since the 2007-2009 global financial crisis. Analysts predict that this shift will include interest rate cuts and reductions in the reserve requirement ratio (RRR) for banks to stimulate the economy. The People's Bank of China is expected to implement more aggressive monetary easing in 2025, including potential cuts to the RRR and further interest rate reductions.

Despite these adjustments, inflation and consumer spending are expected to remain subdued through the end of the year. Analysts project that China’s CPI will see modest growth in 2025, with a projected year-on-year average CPI growth of 0.76% and a PPI increase of 0.94%.

In conclusion, while the recent rise in PPI offers a glimmer of hope for industrial recovery, the broader economy remains fragile, with weak consumer demand and inflationary pressures still presenting significant challenges.