China Inflation Slows, Signals Continued Demand Weakness — Update

China's consumer price growth slowed in November, while factory-gate prices improved but stayed in decline, suggesting persistent weak domestic demand despite Beijing's push to revive spending.

China's consumer-price index rose 0.2% from a year last month, compared with the 0.3% gain seen in October, according to data released Monday by the National Bureau of Statistics. Economists polled by The Wall Street Journal had expected a 0.5% increase.

The producer-price index, meanwhile, fell 2.5% in November, notching a 26th straight month of decline. That compared with the prior month's 2.9% drop and the 2.8% contraction economists had expected.

While the world's second-largest economy has shown some signs of stabilization in recent months due to Beijing's stimulus efforts, Monday's data signals that policymakers have more work to do to convince consumers and businesses to spend as a years-long property downturn continues to drag on.

Official and private gauges of China's manufacturing and services sectors all indicated a pickup in activity last month. However, transactions at China's biggest real-estate companies suggest that the property market is far from bottoming out. New home sales at China's top 100 developers dropped 6.9% from a year earlier to 363 billion yuan last month, equivalent to $49.93 billion, reversing a 7.1% gain in October, according to data provider China Real Estate Information Corp. That also marked a 16.6% slide from the previous month.

Monday's data showed that food prices were the biggest drag on inflation, with growth slowing sharply to 1.0% in November versus October's 2.9% increase. Nonfood prices stayed flat in November compared with a 0.3% decrease in October.

China's core CPI, which strips out volatile food and energy prices, edged up 0.3% on the year last month compared with October's 0.2% increase.

The uptick in core inflation and easing of PPI deflation offers some upside, suggesting that stimulus measures are supporting underlying price pressures to a degree, said Gabriel Ng, assistant economist at Capital Economics. Still, he expects industrial overcapacity to keep inflation low into 2025 and beyond.

The key to fighting off deflationary pressures, economists say, lies in more muscular fiscal stimulus with direct support for households and the ailing real-estate sector. Previous subsidies to encourage Chinese families to upgrade their home appliances and cars have had limited effect, and many economists expect inflation to stay low unless bolder, consumption-focused measures are rolled out.

"Stimulus seems to be putting a floor beneath underlying inflation," Capital Economics' Ng said, "but with the boost from stimulus likely to be short-lived and the underlying causes behind the imbalance between supply and demand not being adequately addressed, we don't see much upside to inflation further ahead."

Against the backdrop of looming tariff hikes from the U.S. under a second Trump administration, attention is on the upcoming Central Economic Work Conference where China's top leadership is expected to offer hints on what next year's policy priorities will be, which economists hope will include more efforts to boost domestic demand.

Write to Singapore editors at singaporeeditors@dowjones.com