Chinese Consumer Inflation Falls to 0.1% in December Raises Inflation Fears

Highlights:

China’s December consumer price inflation eased to 0.1%, down from a 0.2% increase in the previous month.

Core CPI, excluding food and energy, rose 0.4% year-on-year, up slightly from 0.3% in November.

Key background:

Inflation in China eased again in December, with the year-on-year increase falling to just 0.1%, according to data released by the National Bureau of Statistics. The figure was in line with analyst expectations but marked a decline from a 0.2% increase. The Core Consumer Price Index (CPI), which excludes volatile food and energy prices, recorded a slight increase of 0.4%, compared to 0.3% last month.

On a monthly basis, the CPI remained flat after falling 0.6% in November. A decrease in food prices, which decreased by 0.6%, contributed to this assessment. Prices of staple foods such as pork, vegetables, and fruits dropped significantly, while pork prices fell by 2.1%.

Meanwhile, China’s inflation (PPI) continued its downward trend, falling to 2.3% in December, marking the 27th consecutive month of decline. Although this was slightly better than the 2.4% decline expected, the PPI showed signs of a slight improvement, exacerbated by weak demand, particularly in the steel sector, due to the temporary suspension of infrastructure and housing projects.

Persistent inflation reflects underlying concerns about sluggish domestic consumption, despite a range of stimulus measures, including price cuts and subsidies, aimed at stimulating economic activity. Analysts are increasingly concerned about inflation risks, especially as consumer spending remains weak in the run-up to the Chinese New Year. While some signs of recovery are visible in factory jobs, the broader outlook remains uncertain, hampered by a sluggish construction sector and strained international trade relations. Experts warn that downward pressure on China’s currency may continue, as declining consumer confidence continues to challenge the country’s path to economic recovery.