China’s consumer prices fell the fastest in three years in November while factory-gate deflation deepened, indicating rising deflationary pressures as weak domestic demand casts doubt over the economic recovery.

The consumer price index (CPI) dropped 0.5% both from a year earlier and compared with October, data from the National Bureau of Statistics (NBS) showed on Saturday.

That was deeper than the median forecasts in a Reuters poll of 0.1% declines both year-on-year and month-on-month. The year-on-year CPI decline was the steepest since November 2020.

The numbers add to recent mixed trade data and manufacturing surveys that have kept alive calls for further policy support to shore up growth.

Xu Tianchen, senior economist at the Economist Intelligence Unit, said the data would be alarming for policymakers and cited three main factors behind it: falling global energy prices, the fading of the winter travel boom and a chronic supply glut.

“Downward pressure will continue to rise in 2024 as developers and local governments continue to deleverage and as global growth is expected to slow,” Xu said.

Year-on-year core inflation, excluding food and fuel prices, was 0.6%, the same as October.

Bruce Pang, chief economist at Jones Lang Lasalle, said the weak core CPI reading was a warning about persistently sluggish demand, which should be a policy priority for China if it is to deliver more sustainable and balanced growth.

Although consumer prices in the world’s second-biggest economy have been teetering on the edge of deflation in recent months, China’s central bank Governor Pan Gongsheng said last week inflation was expected to be “going upwards”.

The producer price index (PPI) fell 3.0% year-on-year against a 2.6% drop in October, marking the 14th straight month of decline and the quickest since August. Economists had predicted a 2.8% fall in November.

China’s economy has grappled with multiple headwinds this year, including mounting local government debt, an ailing housing market and tepid demand at home and abroad. Chinese consumers especially have been tightening their purse strings, wary of uncertainties in the elusive economic recovery.

Moody’s on Tuesday issued a downgrade warning on China’s credit rating, saying costs to bail out local governments and state firms and to control the property crisis would weigh on the economy.

China’s finance ministry called the decision disappointing, saying the economy would rebound and risks were controllable.

The authorities will spur domestic demand and enhance economic recovery in 2024, the Politburo, a top decision-making body of the ruling Communist Party, was quoted by state media as saying on Friday.

Markets are awaiting more government stimulus at the annual agenda-setting “Central Economic Work Conference” later this month.

China will spur domestic demand and consolidate and enhance the economic recovery in 2024, the Politburo, a top decision-making body of the ruling Communist Party, was quoted by state media as saying on Friday.

The government has in recent months unveiled a flurry of measures to shore up a feeble post-pandemic economic recovery that has been held back by a property crisis, local government debt risks, slow global growth and geopolitical tensions.

Ratings agency Moody’s slapped a downgrade warning on China’s credit rating on Tuesday, saying costs to bail out debt-laden local governments and state firms and control its property crisis would weigh on the growth outlook of the world’s second-largest economy.

Analysts believe the government will have to unveil more stimulus to support the economy, which still faces headwinds.

China will continue to implement a proactive fiscal policy, which will be moderately strengthened, and implement a prudent monetary policy, which will be “flexible, moderate, precise, and effective”, state media quoted the Politburo as saying.

The meeting, which was chaired by President Xi Jinping, also said the country will enhance the consistency of macroeconomic policies, the official Xinhua news agency reported.

China will “effectively enhance economic vitality, prevent and resolve risks, improve social expectations, consolidate and enhance the positive trend of economic recovery, continue to promote the effective improvement of quality and reasonable growth of the economy,” Xinhua said.

“Efforts should be made to expand domestic demand and form a virtuous cycle of mutually promoting consumption and investment. We need to deepen reforms in key areas and continuously inject strong impetus into high-quality development.”