Help me if you can I’m feeling down

November’s inflation data – released by the stats bureau (NBS) Saturday – paints a grim picture:

• The consumer price index (CPI) fell 0.5% y/y, following a 0.2% fall in October and marking the second consecutive month of negative growth.
• The producer price index (PPI) fell 3% y/y, down from a 2.6% fall the previous month and marking the 14th consecutive month of negative growth.

There are three drivers of falling prices:

First, sluggish demand for manufactured goods.

• The price of consumer goods fell 1.4% y/y, with falling prices for home appliances and electronics the main driver.
• For comparison, prices in the services sector – where domestic demand remains strong – grew 1% y/y.

Second, the auto price war.

• Manufacturers – especially in the new energy vehicle (NEV) market – are aggressively cutting prices to seize market share.
• In November, the price of vehicles fell 5% y/y.

Third, falling food prices. In November:

• The price of pork fell 31.8% y/y.
• Overall food prices fell by 4.2% y/y.

Core CPI – which strips out food and energy costs – rose by 0.6% y/y.

Get smart: Even as exports shrink, manufacturers continue to ramp up production.

• This increased industrial production will flood the domestic market, which will create further downward price pressure.

The upshot: Without a rebound in domestic demand, prices will keep falling.