China’s consumer price inflation in December slipped to 0.1% year on year, data from the National Bureau of Statistics showed Thursday, stoking deflation concerns.
Growth in headline inflation was in line with Reuters estimates, but less than the 0.2% rise in November. Core CPI, which excludes food and energy prices, rose 0.4% year on year compared with 0.3% rise in the previous month, the data showed.
On a month-on-month basis, China’s CPI came in flat, compared with the 0.6% decline in the prior month.
Food prices declined by 0.6% month on month as a result of conducive weather conditions, official statistics showed. The prices of fresh vegetables and fruits fell 2.4% and 1%, respectively. Prices of pork, which makes up a significant portion of the CPI basket, fell 2.1%.
“Headline CPI will be negatively impacted by the weaker pork price in 2025,” analysts at ANZ Bank wrote in a note. On a year-on-year basis, pork and fresh vegetable prices remain elevated, climbing 12.5%.
Wholesale prices continued to be fall for a 27th straight month, with China’s producer price inflation down 2.3% year on year in December. The reading was slightly better than Reuters’ estimates of a 2.4% decline.
On a monthly basis, PPI dipped by 0.1% compared to a 0.1% increase in November, as infrastructure and real estate projects were temporarily suspended during the off-season, the National Bureau of Statistics said, hurting demand for steel.
The ongoing near-zero consumer inflation indicates that China continues to struggle with weak domestic demand that has raised the specter of deflation.
Consumption has failed to pick up despite a range of stimulus measures introduced by Beijing since last September, which has included interest rate reductions, support for the stock and property markets and increased bank lending.
As recent as Wednesday, China expanded its consumer trade-in scheme aimed at spurring consumption through equipment upgrades and subsidies.
These subsidies are a “kind of a quick fix” targeting specific products but do not do much for the broader consumption, said Louise Loo, lead economist at Oxford Economics.
“There are [also] significant payback effects later on, which means that, what is spent now will not be spent later,” she said on CNBC’s “Street Signs Asia.”
Shaun Rein, managing director of the China Market Research Group, said that while China’s “cash for clunkers” program has merit, it’s not enough to lift the retail sector: “How many air-conditioners can one family have?”
“Deflation looms heavily over China’s economy in the run up to Chinese New Year as consumers look for deals when buying gifts for family members,” he told CNBC via email. Consumers will continue to expect big discounts and only buy when they have them, Rein observed.
Certain metrics, however, signal China’s economy could see some recovery. The country’s factory activity has been expanding for the past three months, although the pace of expansion slowed in December.
“Although China’s economy displayed some signs of recovery following the policy shift in September, it continues to face significant challenges,” said Carlos Casanova, a senior economist at private bank Union Bancaire Privée, citing the country’s property sector headwinds and trade tensions with the U.S.
Loo, lead economist at Oxford Economics expects that China’s path to reflation will still underwhelm most estimates given the enduring weakness in consumer spending appetite.
China’s onshore yuan on Wednesday hit a 16-month low of 7.3316 against the dollar as Treasury yields rose and the dollar strengthened.