China's Consumer Inflation Slows in December

BEIJING - China's consumer inflation experienced a slowdown in December, which has led to modest annual price increases for 2024. This decline in inflation comes as factory-gate deflation continues into its second year amidst weak economic demand.

A mix of job insecurity, a long-lasting downturn in the housing market, elevated debt levels, and tariff threats from the new U.S. administration have constrained consumer demand. Despite this, Beijing is increasing stimulus measures aimed at revitalizing its consumer sector.

The consumer price index (CPI) increased by only 0.1% year-on-year last month, which is a decrease from November’s 0.2% rise. This marks the slowest rate since April, according to data released by the National Bureau of Statistics. This result aligns with economists' forecasts from a recent Reuters poll.

On a month-on-month basis, the CPI remained stable, compared to a 0.6% drop reported in November, also matching expectations.

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

For the full year, the CPI increased by 0.2%, which matches last year’s rate and falls below the official target of approximately 3%. This indicates that inflation has missed its annual targets for the 13th consecutive year.

Moreover, a price war in the electric vehicle market is entering its third year. Discounts are now being extended across the retail landscape, even reaching popular bubble tea shops.

As consumers become more cautious about spending, renting items like cameras and handbags instead of purchasing them has become a common trend.

Looking at the production side, the producer price index (PPI) decreased by 2.3% year-on-year in December, a slower decline compared to the 2.5% drop in November, and slightly above the expected 2.4% drop. Factory-gate prices have now been on the decline for 27 consecutive months.

In late December, the World Bank revised its predictions for China's economic growth in 2024 and 2025, yet cautioned that sluggish confidence among households and businesses, alongside challenges in the property market, will continue to hinder economic recovery.

To address these issues, China has approved an unprecedented $411 billion in special treasury bond insurance, as the government intensifies fiscal stimulus to revitalize the slowing economy.

Beijing plans to significantly boost funding through ultra-long treasury bonds in 2025 to encourage business investment and initiatives aimed at increasing consumer spending, according to a statement from the state planner.

Additionally, authorities have allocated $41 billion from government bonds this July, aimed specifically at financing equipment upgrades and incentivizing the trading-in of consumer goods, which will include automobiles.

China, Inflation, Economy