China's Ongoing Low Inflation Dilemma

A customer shops for tomatoes at the vegetable section of a supermarket in Beijing, China, on October 17. Despite various efforts to boost consumption, China continues to face challenges regarding consumer price growth.

Consumer Price Index Trends

In December, the consumer price index (CPI), a crucial metric for assessing inflation, rose by just 0.1 percent compared to the same month last year. This growth was lower than the 0.2 percent increase recorded in November. The National Bureau of Statistics (NBS) shared these figures on Thursday, highlighting a continued lackluster performance.

The December increase fell short of market expectations, which had anticipated a growth of 0.16 percent based on a poll conducted by financial data provider Wind.

Over the year 2024, consumer prices in China noted a consistent increase of 0.2 percent, a figure that remained unchanged from the previous year, 2023. This represents the most subdued inflation rate since 2009 and is considerably lower than the official target of 3 percent set by the government.

Concerns of Deflation

Since April 2023, China's CPI growth has mostly stayed around the zero mark, raising concerns among markets about potential deflation and sluggish demand. When examining the CPI in detail, it is noted that food prices actually fell by 0.5 percent year-on-year, while non-food prices slightly increased by 0.2 percent.

Notably, pork prices, a staple in Chinese diets, surged by 12.5 percent. In contrast, fruit prices dropped by 3.0 percent, and vegetable prices saw a minor increase of 0.5 percent. However, in other categories, prices experienced declines; for example, household appliance prices decreased by 3.3 percent, housing rents were 0.3 percent lower, and car prices fell by 4.2 percent.

Monthly Changes and Broader Economic Indicators

In terms of month-on-month changes, the CPI remained stable in December after a decline of 0.6 percent in November. This suggests a stagnation in overall consumer price movement.

Furthermore, the producer price index (PPI), which measures factory gate prices, experienced a decrease of 2.3 percent in December. This marked the 27th consecutive month of falling prices, down from a 2.5 percent decline in November. This downward trend in PPI aligns with the expected decrease of 2.3 percent predicted in Wind's economists' survey.

For the entire year of 2023, PPI fell by 2.2 percent, following a more significant drop of 3.0 percent in the previous year. The current situation presents ongoing uncertainty about the recovery prospects for China's economy, the world's second-largest.

China, inflation, economy