China's Consumer Inflation Slows in December

BEIJING - In December, China's consumer inflation witnessed a slowdown, resulting in modest annual price increases for the year 2024. This comes as factory-gate deflation continues for a second consecutive year, primarily due to weakening economic demand.

Several factors have contributed to this decline in demand. Job insecurity, an ongoing housing market downturn, significant debt levels, and threats of tariffs from the incoming U.S. administration under President-elect Donald Trump have all affected consumer spending. Although the Chinese government is implementing stimulus measures to boost the consumer sector, challenges remain.

According to data released by the National Bureau of Statistics, the consumer price index (CPI) saw a modest increase of 0.1% year-on-year in December, down from 0.2% in November and marking the slowest growth since April. This result aligns with predictions made in a Reuters poll of economists.

On a monthly basis, the CPI was flat, showing no change compared to a 0.6% drop in November and meeting analysts' expectations.

Core inflation, which excludes volatile food and fuel prices, rose to 0.4% in December from 0.3% in November, which is the highest level recorded in five months.

For the entire year, CPI rose by 0.2%, consistent with the previous year's growth rate, and fell short of the official annual target of approximately 3%. This indicates that inflation has missed its annual targets for the thirteenth consecutive year.

Moreover, the ongoing price war in the electric vehicle market, now in its third year, has expanded into broader discounting trends within the retail sector, affecting businesses ranging from automotive to bubble tea shops.

In light of cautious spending habits, many consumers in China are increasingly choosing to rent items, such as cameras and handbags, rather than purchasing them outright.

On the producer side, the producer price index (PPI) experienced a year-on-year decline of 2.3% in December, a slight improvement from the 2.5% drop witnessed in November. This marks the 27th consecutive month of falling factory-gate prices.

In late December, the World Bank revised its growth forecast for China's economy for 2024 and 2025, while also highlighting that weak household and business confidence, alongside challenges in the property sector, will continue to impede economic recovery.

In response to the economic challenges, the Chinese government is increasing fiscal stimulus, having agreed on a record $411 billion worth of special treasury bond insurance. Such measures are aimed at rejuvenating a sluggish economy.

Plans include a significant boost in funding from ultra-long treasury bonds in 2025 to enhance business investments and consumer-related initiatives. The state planner announced that $41 billion has been earmarked from government bonds in July to facilitate equipment upgrades and promote trade-ins of consumer goods, including vehicles.

China, Inflation, Economy