China’s economic landscape grapples with growing deflationary challenges as consumer prices experience a continual decline, emphasizing the hurdles in achieving a robust economic recovery. In December, the consumer price index (CPI) recorded its third consecutive monthly fall, witnessing a 0.3 per cent drop year-on-year and a modest 0.1 per cent increase month-on-month, as reported by the National Bureau of Statistics (NBS).
This decline follows November’s 0.5 per cent decrease in both annual and monthly terms, deviating from economists’ expectations. The primary contributor to the fall in CPI was a significant 26.1 per cent drop in pork prices, although the rate of decline narrowed by 5.7 percentage points. In contrast, services inflation demonstrated resilience, with tourism and hotel accommodation prices rising by 6.8 per cent and 5.5 per cent, respectively.
On the production front, the producer price index (PPI) continued its prolonged descent, falling by 2.7 per cent in December, marking the 15th consecutive month of declines—slightly below analysts’ expectations. This persistent weakness in demand across the economy highlights the necessity for vigilant policymaking to counter entrenched expectations of further price falls.
China’s central bank, acknowledging these challenges, has committed to implementing macroeconomic policy adjustments to support the economy and stimulate price rebounds. Despite positive signals in private-sector survey data indicating faster growth in factory and services activities, the broader economic recovery remains uneven.
Challenges such as a prolonged housing downturn, a soft job market, and debt risks continue to weigh on growth prospects. Consumer spending has been constrained, with full-year CPI rising by only 0.2 per cent, falling short of the official target for the year and marking the 12th consecutive year of undershooting annual inflation targets.
To address these economic headwinds, the People’s Bank of China (PBOC) has implemented measures, including lifting policy bank loans through its pledged supplementary lending (PSL) facility. Additionally, plans to issue 1 trillion yuan ($139.39 billion) in sovereign bonds to fund investment projects, along with commitments to proactive fiscal policy in 2024, signal an emphasis on fiscal spending to drive economic revival.
