China’s November Consumer Price Index (CPI) and Producer Price Index (PPI) just came out. The CPI printed at 1.4% year-on-year, below the expectations of 1.6%, a 5-year low. The PPI, which is already reading negative, came in at -2.7% year-on-year, also below expectations of –2.4%. The downward trend of inflation is persisting amid the further economic slowdown in China.

A low CPI and PPI may seem like a good thing for Chinese consumers and businesses, except that it could lead to widespread deflation and a long-term drop in demand, meaning "why buy it now if it will be cheaper in six months?”.

This week, China reported crude oil imports worth U.S. $16.42 billion in November, down from $18.43 billion from a year ago. Falling oil prices prompt importers to wait until the oil gets even cheaper and delay their purchases.

Last month, the People's Bank of China (PBOC) announced a cut in the one-year benchmark lending rate by 0.4% to 5.6% and in the one-year benchmark deposit rate by 0.25% to 2.75%. The cuts have already been criticized as short on impact. The PBOC next move could be a cut to the banking industry's reserve requirement ratio, known as RRR.

Although the RRR cut could increase trillions of yuan cash flow into the economy and ease the loan supply, the reserve ratio cut may not be enough to reverse the trend of economic weakness, because it isn’t designed to increase the loan demand.