CHINA’S factory-gate deflation deepened and consumer prices climbed at the slowest pace since 2009, signaling room for further monetary easing.

    The producer-price index dropped 2.7 percent in November from a year earlier, a record 33rd-straight decline and the biggest fall since June last year. Consumer prices rose 1.4 percent, compared with the 1.6 percent increase in October.

    Falling oil and metals prices have cut costs for China’s factories, leading to lower export prices and adding to disinflation pressure across the world. China’s central bank last month cut interest rates for the first time in two years as the economy heads for its weakest full-year growth since 1990.

    “China has entered a rapid dis-inflation process, and faces the risk of deflation,” said Liu Ligang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “As the PBOC has exhausted its newly invented and ineffective policy tools, we believe the next move will have to be a RRR cut in order to regain policy effectiveness and credibility.”

    Factory-gate prices of coal products fell 11.6 percent from a year earlier, oil and gas products slumped 13 percent and ferrous metal products declined 16.6 percent, according to a statement on the National Bureau of Statistics website.

    “The major driver of the recent decline in headline inflation readings is the slump of global oil and other major commodity prices,” said Lu Ting, Bank of America Corp.’s head of Greater China economics in Hong Kong.

    Oil’s slide also helped push China’s trade surplus to a record in November after an unexpected decline in imports. Lower oil prices could boost economic growth and help keep inflation slow enough to give scope for further easing after last month’s surprise interest-rate cut.

    China is forecast to lower banks’ required reserve ratio to 19.5 percent in the first quarter of 2015 and to 19 percent in the second quarter, according to a survey by Bloomberg News.

    “The data partly reflects low commodity and food prices but it also confirms disinflationary pressures and softness of domestic demand,” said Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong. “It will likely convince policymakers to ease their policy stance further and we continue to expect a RRR cut in the near term, most likely this month.”

    China’s top leaders started a meeting Tuesday to map out economic plans for 2015. Economists expect the government to lower next year’s economic growth target to 7 percent from about 7.5 percent this year as it adapts to the “new normal” of a slower expansion pace.

    “In the near future, the PBOC will likely remain at the forefront of the global central banks’ battle against ‘low-flation’,” said Morgan Stanley analysts led by Helen Qiao in a note ahead of yesterday’s release. The analysts said they expect more flexibility in combining interest rate and reserve requirement cuts with targeted easing measures to maintain macro stability and address structural imbalances.

    (SD-Agencies)