In December 2024, the Chinese Consumer Price Index hit a nine-month low, intensifying concerns about ongoing deflationary pressures constraining the Chinese economy.
On Thursday, January 9th, official data from Beijing revealed that due to sustained weak domestic demand, consumer prices in China barely rose in 2024, while factory prices saw a continuous decline for the second consecutive year.
Despite Beijing’s efforts to ramp up stimulus measures, factors such as unstable employment, the long-standing slump in the real estate market, and Trump’s tariffs have all contributed to impacting demand.
The National Bureau of Statistics of China announced on Thursday that the Consumer Price Index (CPI) rose by a mere 0.2% for the year, remaining flat compared to the same period in 2023 and far below the official target of around 3% for 2024.
In December 2024, the CPI increased by 0.1% year-on-year, lower than the 0.2% rise in November, marking the lowest increase since April 2024 and aligning with predictions made by economists surveyed by Reuters.
Monthly calculations show that the CPI remained stable, remaining unchanged from a 0.6% drop in November.
The main drag on the CPI index was a decrease in food prices. The core inflation rate (excluding volatile food and fuel prices) rose from 0.3% in November to 0.4% in December 2024.
On the upstream side, the Producer Price Index fell by 2.3% year-on-year in December 2024, lower than the 2.5% in November and the expected 2.4%. Factory prices have been in a deflationary state for 27 consecutive months.
Amid the release of this data, price pressures have swept through global bond markets. Concerns about a deflationary spiral in China have led to the country’s benchmark yields hitting new lows in recent weeks.
Economists have long been worried that post-COVID-19, the Chinese economy could fall into a vicious cycle of falling prices and weak demand against a backdrop of a sluggish real estate sector, flagging consumer spending, and deteriorating investment sentiment.
The price war in China’s electric car market has entered its third year, with discount activities expanding into the entire retail industry, including bubble tea shops and other non-essential goods. Increasingly cautious Chinese consumers are opting to rent items like cameras and handbags rather than making purchases.
Zhang Zhiwei, President and Chief Economist of Pinpoint Asset Management, stated in a report that “deflationary pressure remains present.”
“The slump in the real estate sector has not yet ended, continuing to impact consumer confidence,” he said. “The inflation outlook largely depends on the effectiveness of fiscal policy.”
Starting in September 2024, Beijing announced a series of stimulus measures to reverse economic slowdown, but their effects have yet to be seen. Key economic indicators such as retail sales and fixed asset investment were below expectations in November, while manufacturing activity slowed down in December. With Trump set to return to the White House in less than two weeks, his repeated promises to increase tariffs on Chinese imports could create further hurdles for the Chinese economy.
In a December 2024 report, Nomura Research Institute’s Chief Economist Richard Koo mentioned, “Many problems in China are self-inflicted by the (CCP) government.” Like many economists, Richard Koo believes that China needs to “race against time” to address the increasingly severe growth issues before the economy falls into a prolonged slump.