Chinese Economy Still Faces Deflation Risk: Capital Economics

(RTTNews) - The Chinese economy still faces the risk of slipping into a deflationary trap, Capital Economics' economist Gabriel Ng said.

Data released by the National Bureau of Statistics on Saturday showed that consumer price inflation softened to 0.3 percent in October from 0.4 percent in September. Moreover, this was the weakest in four months. Meanwhile, core inflation that excludes prices of food and energy rose to 0.2 percent from 0.1 percent in the previous month.

Data showed that producer prices continued to decline in October. Prices were down 2.9 percent annually after falling 2.8 percent in the previous month.

Inflation data suggests that recent stimulus efforts are having some effect, the economist said. In the near-term, the fiscal boost from local governments deploying existing funds should lift inflation further, he noted.

However, the economist observed that fiscal support is still over-reliant on investment rather than consumption, suggesting that supply-demand imbalances and overcapacity will remain a persistent structural issue.

Moreover, the government has not revealed any concrete plans for a major fiscal expansion next year without which the economy risks slipping deeper into deflation, he said.