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

Prime Highlights:

China's consumer price inflation in December dropped to 0.1%, decreasing from the previous month’s rise of 0.2%.

The core Consumer Price Index (CPI), which leaves out food and energy prices, rose by 0.4% year-on-year. This is a small increase compared to November's 0.3%.

Key Background

The slowdown in China's consumer inflation continued in December, with the year-on-year increase falling to just 0.1%, as per data from the National Bureau of Statistics. This figure met analysts' expectations, but still represented a decrease from November's 0.2% increase. The core CPI showed a slight rise, moving from 0.3% in November to 0.4% in December.

Looking at month-on-month figures, the CPI did not change, following a decline of 0.6% in November. The drop in food prices was a key factor contributing to this slowdown, with an overall decrease of 0.6% in food prices. Major food items like pork, vegetables, and fruits saw significant price drops, with pork prices falling by 2.1%.

Producer Prices and Consumer Sentiment

In parallel, China's producer price inflation (PPI) kept declining, decreasing by 2.3% in December. This marked 27 consecutive months of decline. This figure was slightly better than the anticipated drop of 2.4%. The ongoing decline in PPI indicates weak demand, particularly within the steel sector, which has been affected by the temporary halt of infrastructure and real estate projects.

Concerns Over Economic Conditions

The ongoing low inflation levels raise concerns regarding weak domestic consumption, which persists despite various stimulus measures by the government, such as interest rate cuts and financial subsidies aimed at boosting economic activity.

Analysts are growing more concerned about the risks of deflation, especially as consumer spending seems lackluster leading up to the Chinese New Year celebrations. Although some recovery signs are noted in factory activities, the overall economic outlook remains unclear, largely hindered by a sluggish property market and issues in international trade relations. Experts warn that China’s deflationary pressures may continue, with persistently low consumer confidence complicating the nation’s efforts toward economic recovery.

inflation, economy, deflation