China’s Consumer Inflation Slows to 0.1% in December Raising Deflation Fears

Prime Highlights:

In December, China’s consumer price inflation fell to 0.1%, a decrease from the previous month's rise of 0.2%.

Additionally, the core Consumer Price Index (CPI), which excludes food and energy, saw a year-on-year increase of 0.4%, up from 0.3% in November.

Key Background:

The slowdown in consumer inflation in China became evident in December, with a year-on-year increase reduced to only 0.1%. This figure aligns with analyst forecasts but shows a decline from the 0.2% rise recorded in November. Excluding food and energy, the core CPI indicated a slight uptick of 0.4%, compared to a 0.3% increase the month prior.

When looking at month-to-month data, the CPI showed no change after a 0.6% decline in November. A significant contributor to this slowdown was a 0.6% drop in food prices. Essential food items, such as pork, vegetables, and fruits, saw notable price reductions, with pork prices alone decreasing by 2.1%.

At the same time, China’s producer price inflation (PPI) continued its downward trajectory, registering a 2.3% decline in December. This marked the 27th straight month of falling producer prices. Although this decline was slightly better than the anticipated drop of 2.4%, the PPI displayed few signs of recovery, primarily due to low demand in sectors like steel, influenced by halted infrastructure and real estate projects.

The ongoing low inflation levels raise concerns about weak domestic consumption, even in light of various stimulus measures put in place, such as rate cuts and subsidies intended to boost economic activity. Analysts are increasingly alarmed by the potential for deflation, especially with consumer spending remaining sluggish as the Chinese New Year approaches. While there are some indications of recovery in factory activity, the broader economic outlook appears uncertain, hampered by challenges in the property sector and strained international trade relations. Experts warn that deflationary pressures in China could persist, as diminishing consumer confidence continues to obstruct the nation’s economic recovery journey.

China, Inflation, Economy