A customer shops for vegetables at a supermarket in Xuchang, Henan province. In November, food prices went up 5.9 percent year-on-year, with vegetable prices up 22.3 percent, according to the National Bureau of Statistics. [Photo / China Daily]

Analysts say continuing fall in producer prices is 'more of a concern'

China's November Consumer Price Index eased to a three-month low of 3 percent year-on-year from 3.2 percent in October, amid relatively weak demand conditions, the National Bureau of Statistics said on Monday.

Analysts said that the continuing deflation of factory product prices should raise more concerns than the receding consumer inflation.

The Producer Price Index contracted 1.4 percent in November from a decrease of 1.5 percent in October. The index has remained in negative territory for 21 consecutive months, according to the NBS.

The long-term PPI deflation indicates serious problems of industrial overcapacity and weak market demand, which may deeply influence the development of the real economy, said Lu Fengyong, a researcher at the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, a government think tank.

Qian Shaotian, a sales manager of Shanghai Yuanzong Hardware Co Ltd, which sells hardware products mainly to European clients, said that overcapacity has been a common problem in his industry.

Qian said that the company has been trying to sell its products online to individual buyers at much cheaper prices to reduce high inventories and become more competitive.

Wu Yue, a manager at Shanghai Zaiwang Steel Co Ltd, has been facing similar difficulties.

"The government has been continuously reducing the launch of infrastructure construction projects this year, which directly affects the demand for raw materials, especially steel," he said.

As demand from the domestic market remains weak, Wu's company expects to see a 15 percent loss after shutting down one of its three production facilities in September.

"If we don't see a market recovery next year, we'll probably close down the business to prevent further losses," said Wu.

In November, about 1.92 percentage points of the overall inflation growth was attributed to higher food prices, which increased 5.9 percent year-on-year, slower than the 6.5 percent hike seen in October, the NBS said.

Non-food prices rose 1.6 percent last month from a year earlier, unchanged from October.

The lower CPI figure in November brings the first 11 months' reading to 2.6 percent, compared with the government's whole-year target of 3.5 percent, which means that headline inflation remains manageable in the near term, said Zhu Haibin, chief economist in China at JPMorgan Chase & Co.

Qu Hongbin, chief economist in China at HSBC Holdings Plc, said that the recent moderate inflation pressures imply that policymakers will continue to focus on measures to support growth and employment while implementing structural reform policies.

"While the sustainability of the improvement in external demand remains uncertain, it could only lend limited support to China's growth recovery, seeing that domestic demand remains the key driving force," Qu said.