China’s consumer inflation weakened further toward zero, decelerating for a fourth straight month in a setback for government efforts to stamp out deflation and revive demand by injecting stimulus into the economy.
The consumer price index rose 0.1% from a year earlier, the National Bureau of Statistics said Thursday, compared with a 0.2% gain in the previous month. The reading matched the median forecast of economists surveyed by Bloomberg.
Factory deflation extended into a 27th month, though the producer price index (PPI) recorded a slower drop of 2.3%. But in a more encouraging sign for policymakers, core consumer price index (CPI) — which excludes volatile food and fuel prices — picked up for a third month to 0.4% from a year ago, reaching the highest level since July.
The persistence of deflationary pressures in China is in stark contrast to other major economies, with elevated inflation risks flagged by US Federal Reserve (US Fed) officials and euro (EUR)-area price growth accelerating last month. The worry for Beijing is that an entrenched cycle of price decreases threatens to hold back household spending for longer and damages corporate revenues so much that it stifles investment and leads to further salary cuts and layoffs.
For the full year, consumer prices only inched up 0.2% from 2023, well short of the 1.1% gain economists had predicted at the beginning of 2024.
Chinese stocks pared losses after the data release, with the CSI 300 Index trading little changed after a 0.5% decline earlier.
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Dong Lijuan, chief statistician at the NBS, said that while the consumer market remained largely stable in December, an annual drop of 0.5% in food prices was a drag on the overall index.
She also attributed monthly declines in PPI to price fluctuations in commodities and a seasonal slowdown in some industries.
The most recent inflation readings suggest the gross domestic product (GDP) deflator — a broader measure of economy-wide prices — will likely extend its drop for the seventh straight quarter, according to Bloomberg Economics. It will likely stay negative in 2025 for the third year in a row, which would be the longest streak since the early 1960s, Citigroup Inc economists said in a note Monday.
See also: Chinese stocks tumble in worst start to a year since 2016
Officials led by President Xi Jinping last month made boosting consumption and domestic demand the top priority this year for only the second time in at least a decade. They have pledged to use greater public borrowing and spending as well as monetary easing to spur growth in 2025.
China is expanding a program to subsidize consumer products and boost funding for industrial equipment upgrades. Officials on Wednesday said more products would be eligible for the subsidies, with companies in sectors such as electronic information and work safety included to get support this year.
But economists including Robin Xing of Morgan Stanley believe the Chinese government faces a prolonged battle to reflate the economy and shift sentiment.
