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China’s consumer prices remained in deflationary territory for the third consecutive month in December, adding pressure on policymakers to restore confidence in the world’s second-largest economy.
The country’s consumer price index fell 0.3 per cent year on year last month, according to official statistics released on Friday. Producer prices dropped by 2.7 per cent.
Both measures fell slightly less than forecast, and marked a marginal improvement from November, when consumer prices declined 0.5 per cent and producer prices slid 3 per cent.
China’s economy fell into deflation in July and prices have since been flat or fallen in every month except August, adding another challenge for policymakers as they contend with weakened trade, fragile consumer sentiment and a rolling slowdown in the property sector in the wake of three years of strict anti-pandemic policies.
Beijing has undertaken a series of piecemeal stimulus measures, including loosening critical lending rates and stepping up access to credit in strategic sectors, in particular in the property sector, which typically accounts for more than a quarter of economic activity.
Officials are expected to target gross domestic product growth of about 5 per cent in 2024, similar to the 2023 mark, which was the lowest in decades.
“Fiscal and monetary policies started to move in the right direction in Q4 2023, but it takes time for these policies to be transmitted to the economy,” said Zhiwei Zhang, chief economic at Pinpoint Asset Management. “It is also unclear if these policies are strong enough to offset the deflationary pressure in the economy.”
Full-year inflation for 2023 was slightly positive at 0.2 per cent, but fell far short of an official upper target of 3 per cent. The producer price index, which reflects factory gate prices and is strongly affected by global costs of raw materials and commodities, has declined every month since October 2022.
Trade data released on Friday showed China’s exports climbed 2.3 per cent in December from a year earlier in dollar terms, exceeding forecasts and building on an expansion in November that reversed six months of declines.
Imports for December edged up 0.2 per cent, beating expectations of a decline and reversing November’s contraction.
But exports fell 4.6 per cent for 2023, the first full-year decline since 2016, as higher global inflation dented demand for Chinese goods. Full-year imports declined 5.5 per cent, the first fall since 2020.
China’s trade surplus came in at $823bn in 2023, down from last year’s record figure of $878bn.
Analysts at Capital Economics noted that the December exports growth was partly due to “exporters slashing prices to gain market share”, which ate into already low industrial profits.
“Without the support of price cuts, exporters will find it more difficult to shake off the post-pandemic pullback in global goods demand,” they wrote in a note.
The People’s Bank of China is expected on Monday to cut its medium-term lending facility — a policy tool that allows it to inject liquidity into the financial system — for the first time since August. A poll of Bloomberg economists anticipates a 0.1 percentage point cut, to 2.4 per cent.
Policymakers have also sought to reduce restrictions on home purchases in major cities and have moved quickly to address any signs of spillover risks after a wave of property developer defaults since late 2021, including Country Garden, the country’s largest private developer, last year.
Zhongzhi, a shadow banking conglomerate that controls various investment companies, declared bankruptcy last week, six months after missed payments came to light.
China’s CPI has in recent months been affected by volatile prices of pork, the largest item in the consumer basket of goods. Core inflation, which strips out energy and food, expanded 0.6 per cent in December, flat from the month before, while services inflation rose 1 per cent year on year.
