China's Consumer Inflation Slows in December

BEIJING - In December, China's consumer inflation experienced a slowdown, resulting in modest annual price gains projected for 2024, while factory-gate deflation continued into its second year due to weak economic demand.

Several factors have contributed to this reduced demand, including job insecurity, ongoing issues in the housing market, high levels of debt, and potential tariff threats stemming from the incoming administration of U.S. President-elect Donald Trump. Despite these challenges, Beijing has been increasing stimulus efforts aimed at revitalizing the consumer sector.

The consumer price index (CPI) rose by only 0.1% in December compared to the same month last year. This is a decrease from November's 0.2% increase and marks the slowest growth rate since April, according to data released by the National Bureau of Statistics. This result matched predictions made in a recent Reuters poll of economists.

On a month-to-month basis, the CPI remained unchanged, following a 0.6% drop in November, which also aligns with market forecasts.

Core inflation, which excludes volatile food and fuel prices, saw a modest increase of 0.4% in December, up from 0.3% in November, marking the highest level in five months.

For the entire year, the CPI rose by 0.2%, consistent with the previous year's growth and falling short of the government’s official target of about 3%. This outcome indicates that inflation has missed its annual goals for 13 consecutive years.

The ongoing price competition in the electric vehicle market, now entering its third year, has further pressured prices. Discounts are becoming more common across various sectors, including bubble tea outlets.

As consumer confidence wanes, many shoppers are choosing to rent items such as cameras and handbags, instead of making purchases.

On the producer side, the producer price index (PPI) experienced a 2.3% year-on-year decline in December, a slight improvement from November's 2.5% drop and lower than the expected decline of 2.4%. Factory-gate prices have continuously decreased for 27 months.

At the end of December, the World Bank raised its growth forecasts for China's economy in both 2024 and 2025, but cautioned that low household and business confidence, alongside challenges in the property sector, would continue to hinder growth.

In response to slowing economic performance, China has initiated a significant fiscal stimulus plan, agreeing to a record $411 billion allocation for special treasury bond insurance. The Chinese government plans to increase funding from ultra-long treasury bonds in 2025 to promote business investment and consumer incentives.

Additionally, authorities have set aside $41 billion from government bonds in July to support upgrades in equipment and facilitate trade-ins for various consumer goods, including automobiles.

China, Inflation, Economy