China's Ongoing Struggle with Low Consumer Inflation

In a challenging economic environment, China faces persistent low consumer inflation for the second consecutive year. Despite various measures put in place to stimulate consumer spending, recent data reveals that consumer price growth continues to lag behind expectations.

According to the latest report from the National Bureau of Statistics (NBS), China's consumer price index (CPI) edged up by only 0.1 percent year-on-year in December. This is a decline from a 0.2 percent increase noted in November. Market analysts had anticipated a slightly higher growth of around 0.16 percent, highlighting a gap between expectations and reality.

For the entire year of 2024, China's consumer prices showed a slight increase of 0.2 percent. This figure is similar to the annual growth recorded in 2023 and represents the lowest inflation rate experienced since 2009. The government's control target for inflation stands at 3 percent, making the current figures fall significantly short of this goal.

Since April 2023, the CPI growth in China has remained close to zero, triggering rising concerns among economists and investors about potential deflationary pressures and ongoing weak consumer demand.

Breaking down the CPI figures, food prices saw a decrease of 0.5 percent year-on-year in December, while non-food prices experienced a minor increase of 0.2 percent. Among food items, the price of pork—an essential part of the Chinese diet—rose by 12.5 percent, contrasting with a 3.0 percent drop in fruit prices and a 0.5 percent increase in vegetable prices.

However, many other price categories showed declining trends. For instance, the prices for household appliances declined by 3.3 percent, housing rents saw a decrease of 0.3 percent, and car prices fell by 4.2 percent. This widespread drop in prices indicates a potential challenge for both consumers and producers.

Moreover, month-on-month data for December showed that the CPI remained flat, following a 0.6 percent decline reported in November, suggesting stagnation in consumer price movements.

In terms of production, the producer price index (PPI), which reflects the prices at the factory gate, recorded a 2.3 percent decline in December. This marks the 27th consecutive month of falling prices for producers. The PPI had also decreased by 2.5 percent in November, aligning with economists' expectations of a 2.3 percent drop based on recent surveys.

The PPI saw an overall annual decline of 2.2 percent last year, following a 3.0 percent decrease in 2023.

This mixed picture of consumer and producer prices raises important questions about the future trajectory of the economy and the sustainability of the recovery efforts. Policymakers will need to carefully assess these developments and adjust strategies to stimulate demand and foster consumer confidence in the coming months.

China, Inflation, Economy