China faces deflation next year as food and commodities prices have plunged, which will prompt the central bank to cut interest rates further, according to Goldman Sachs Group Inc and JPMorgan Chase & Co.
With Consumer Price Index inflation at 2.4 percent, from a 2008 high of 8.7 percent, opponents of further interest rate cuts by the People's Bank of China "have lost their arguments," Yu Song, a Hong Kong-based economist for Goldman Sachs, wrote in a report that forecast another 2 percentage point lending-rate cut next year.
Among the main indicators that both consumer and producer prices will "fall to negative territory very soon" are decelerating retail food costs and a decline in coal of more than 30 percent month-on-month, the report said.
The Producer Price Index expanded at a slower rate than CPI in November for first time since April, according to statistics compiled by Bloomberg News.
(Shanghai Daily December 12, 2008)
