Weak Inflation Highlights Demand Challenges
China’s consumer prices barely increased in 2024, while factory-gate prices continued to decline for a second consecutive year, reflecting persistently weak domestic demand, according to official data released on Thursday by the National Bureau of Statistics.
Key figures include:
- Consumer Price Index (CPI): Up 0.2% for the year, matching the previous year’s pace and falling far below the official target of 3%, marking the 13th consecutive year inflation missed its goal.
- December CPI: Increased just 0.1% year-on-year, down from November’s 0.2%, and the slowest pace since April.
- Core Inflation: Excluding volatile food and fuel prices, it rose to 0.4% in December, the highest in five months.
Deflationary Pressures in Factory Prices
Upstream, the Producer Price Index (PPI) showed continued deflation:
- December PPI: Fell 2.3% year-on-year, a slower decline than November’s 2.5% and better than the expected 2.4% drop.
- Factory-gate prices have remained deflationary for 27 straight months, highlighting sustained economic headwinds.
Stimulus Provides Temporary Relief
Economists believe policy stimulus measures are offering temporary support:
- Julian Evans-Pritchard, Head of China Economics, noted that stimulus is helping demand and prices, but warned that the effects are likely to be short-lived.
- Zhang Zhiwei, President of Pinpoint Asset Management, emphasized that the property sector downturn continues to weigh heavily on consumer sentiment.
Broader Deflationary Trends
A prolonged electric vehicle price war, now in its third year, has extended discounting across the retail sector, including bubble tea shops and other discretionary goods.
- Increasingly cautious consumers are opting to rent items, such as cameras and handbags, rather than making purchases.
- “The deflationary pressure is persistent,” Zhang added, emphasizing the need for effective fiscal policies to stimulate recovery.
Government Actions to Spur Growth
China is ramping up fiscal stimulus to counter these challenges:
- Record Treasury Bonds: Beijing has agreed to a record $411 billion in special treasury bond issuance to revive the economy.
- Ultra-Long Treasury Bonds: Additional funding is expected in 2025 to support business investment and consumer-boosting initiatives.
- Targeted Funding: Authorities have allocated $41 billion from government bonds to finance equipment upgrades and consumer goods trade-ins, including autos.
Outlook for 2025
While the World Bank recently upgraded China’s economic growth forecast for 2024 and 2025, it warned that subdued household and business confidence, alongside property sector struggles, would remain significant drags.
Despite stimulus measures, many economists predict that underlying inflation will weaken again later in the year, with the effectiveness of fiscal policy determining the long-term outlook.
