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China’s consumer prices remained in deflationary territory for a third straight month in December, adding to the pressure on policymakers seeking to restore confidence in the world’s second-largest economy.
The country’s consumer price index fell 0.3% in December from a year earlier, official figures released on Friday showed. Producer prices fell by 2.7%.
Despite widespread expectations for a decline, both indicators were slightly lower than expected.
China’s economy suffered from deflation in July, and since then prices have been flat or fallen in every month except August, with November’s 0.5% drop being the steepest decline in three years.
Deflation joins a series of economic challenges facing the Chinese government, which is seeking to ease key lending rates to combat a prolonged slump in the real estate sector, which typically accounts for more than a quarter of economic activity. .
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China’s sustained weakness in consumer price inflation reflects an incomplete recovery from three years of strict anti-pandemic policies. Although the policy was lifted a year ago, it continues to weigh heavily on fragile consumer sentiment.
The inflation rate in 2023 was slightly positive at 0.2%, but far from the official upper limit target of 3%. Officials expect GDP growth in 2024 to be around 5%, on par with 2023, the slowest rate in decades.
China’s producer price index reflects factory gate prices and is strongly influenced by global raw material and commodity costs, and has been declining every month since October 2022.
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The People’s Bank of China is expected on Monday to cut its medium-term lending facility, a policy tool used to inject liquidity into the financial system, for the first time since August. A Bloomberg survey of economists forecasts a 0.1 percentage point cut to 2.4%.
Policymakers are also looking to ease restrictions on home purchases in big cities, with a spate of defaults by real estate developers since the end of 2021, including last year by Country Garden, the country’s largest private developer, a sign of spillover risks. We are trying to deal with it quickly.
Zhongzhi, the shadow banking conglomerate that controls various investment companies, declared bankruptcy last week, six months after the payment omissions were discovered.
China’s CPI has been affected in recent months by price fluctuations in pork, the largest item in consumers’ baskets of goods. Core inflation, which excludes energy and food, was positive at 0.6% in December, flat from the previous month.