China's Consumer Inflation Slows in December

BEIJING - China's consumer inflation showed a decline in December, resulting in modest annual price increases projected for 2024. The situation is compounded by a continuous drop in factory-gate prices that have now persisted for two years, highlighting lackluster economic demand.

Factors such as job insecurity, a prolonged slump in the housing market, high levels of debt, and potential tariffs from the incoming U.S. administration have impacted consumer demand. While the government is ramping up stimulus measures to support the consumer market, challenges remain.

Data released by the National Bureau of Statistics revealed that the consumer price index (CPI) rose by just 0.1% year-on-year last month. This marks a slowdown from November's 0.2% increase and represents the weakest growth rate since April. This figure aligns with expectations forecasted in a Reuters poll of economists.

On a month-to-month basis, the CPI remained flat in December, contrasting with a 0.6% decline in November and also matching predictions.

Core inflation, which excludes the often-volatile food and energy prices, saw a slight increase of 0.4% in December from 0.3% in November, reaching its highest point in five months.

For the entire year, the CPI increased by 0.2%, consistent with the previous year's growth and falling short of the government's target of approximately 3%. This continues a trend of failing to meet annual inflation targets for the 13th consecutive year.

The decline in consumer prices is further influenced by a prolonged price war in the electric vehicle sector, now entering its third year, and increasing discounts across various retail outlets, including specialized shops such as bubble tea establishments.

Additionally, consumers are becoming more cautious, opting to rent items like cameras and handbags rather than purchasing them outright.

Looking at the production side, the producer price index (PPI) fell by 2.3% year-on-year in December, showing a smaller decline than the 2.5% drop in November and just below the anticipated decrease of 2.4%. Factory-gate prices have now seen a downward trend for 27 consecutive months.

In late December, the World Bank revised its growth forecasts for China’s economy in 2024 and 2025, while cautioning that weak confidence among households and businesses, along with ongoing issues in the property sector, could continue to hinder economic progress.

In response to these economic challenges, China has entered into a substantial agreement for $411 billion worth of special treasury bond insurance. This move is part of Beijing's efforts to enhance fiscal stimulus and support a struggling economy.

The state planner indicated that funding through ultra-long treasury bonds would significantly increase in 2025, aimed at encouraging business investments and consumer spending initiatives. Previously, in July, authorities set aside $41 billion from government bonds to fund upgrades in equipment and promote trade-in programs for consumer goods like automobiles.

China, inflation, economy