December saw a third consecutive month of declines in factory-gate prices and consumer prices in China, underscoring ongoing deflationary pressures in an economy that is finding it difficult to make a sustainable recovery.

The consumer price index (CPI) increased 0.1% month over month in December but down 0.3% year over year, according to statistics released on Friday by the National Bureau of Statistics (NBS). The index decreased by 0.5% on a monthly and annual basis in November.

According to Reuters polled economists, consumer prices would rise by 0.2% on a monthly basis and decrease by 0.4% on an annual basis.

Pork prices, the primary element influencing the CPI year over year, decreased by 26.1%, according to NBS, decreasing the pace of reduction by 5.7 percentage points.

On the other hand, services inflation increased gradually as travel and lodging costs increased by 6.8% and 5.5%, respectively.

After falling 3% in November, the producer pricing index (PPI) fell 2.7%, continuing a 15-month trend of reductions. In December, analysts had projected a 2.6% decline.

The most recent data highlights the general weakening of demand throughout the economy, which warns policymakers against becoming complacent about price decline forecasts. In an effort to boost the economy and encourage a price recovery, China’s central bank has promised to increase changes to its macroeconomic policies.

Due to a prolonged property slump, a weak labour market, and additional obstacles like debt concerns that limit economic potential, consumers in the second-biggest economy in the world have been cutting back on purchases.

The CPI increased by 0.2% for the entire year, falling short of the intended goal of roughly 3%. This implies that for the past 12 years in a row, actual inflation has fallen short of annual targets.

Despite some encouraging indicators, China’s economic recovery is still uneven. In contrast to declining indicators in official data, private-sector survey results from December indicated higher development in factory and service activity, sustaining calls for stimulus in the new year.

The People’s Bank of China (PBOC) has raised hopes for more assistance for the nation’s struggling housing sector by eliminating policy bank loans at the end of the previous year through its promised supplemental lending (PSL) facility.

The chief of the PBOC’s monetary policy division, Zou Lan, was cited by state media earlier this week as saying that the central bank will employ policy tools, such as reserve requirements, to boost credit expansion.

In October, China announced intentions to issue 1 trillion yuan ($139.39 billion) in sovereign bonds to finance investment projects. Additionally, the country committed to enacting aggressive fiscal policy in 2024, which bolstered market expectations that fiscal expenditure would likely play a major role in stimulating the economy.

(Adapted from MarketScreener.com)

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy