Disinflationary pressures persist for China as CPI slipped to four-year low in November

Blame it on falling commodity prices.

China’s headline consumer price index plunged to a four-year low in November, coming in below market expectations at 1.4%. This is the lowest reading since January 2010.

According to HSBC, this reflects the contraction in oil prices as well as weak demand. Meanwhile, the producer price index (PPI) contracted another 2.7%, due to weaker commodity prices across the board.

"While supply side factors undoubtedly matter, demand also remained weak and is in fact the more fundamental reason behind sluggish inflation. Core inflation moderated again in November, suggesting weak demand. With a string of weak data in November, from the PIMs to exports, we believe growth momentum has slowed and risks are on the downside with regard to industrial activity and growth. The recent market volatility aside, we believe the intensifying disinflationary pressures, which we believe primarily reflect weak demand will prompt more monetary easing in the coming months," said HSBC Greater China Economist Julia Wang.