Low inflation in China leaves room for stimuli

In November, the producer price index in China decreased by 1.3% compared with the previous year. Economists polled by Bloomberg were speaking about a 1.5% decrease. 

Consumer inflation in October reduced from 2.1% to 1.6%, and it matches the forecasts. Core inflation remained at a level of 0.6%, excluding foodstuff and energy products. 

President and top economist at Pinpoint Asset Management Zhang Zhiwei believes that these data indicate the weakening economical momentum. He expects the government will make a greater effort to increase trust of people and the market.

Weak figures allow the People’s Bank of China (PBOC) to ease monetary policy and reduce interest rates. This can be done despite the intention of the Fed and other major banks to raise rates at the beginning of the new year.

Economists expect the PBOC's rate on medium-term credits to decrease in the second and third quarters of 2023. The bank is also expected to cut rates on one-year and five-year credits by March.