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Chinese consumer prices barely rose in December, underscoring deflationary pressures that have pushed bond yields to record lows in the world’s second-largest economy.
Consumer prices rose 0.1% last month from a year earlier, in line with Reuters analysts’ average forecast and at the lowest level in nine months, according to official data released by the National Bureau of Statistics on Thursday. The reading was down from a 0.2% increase last month.
Inflation data remain weak despite months of efforts by policymakers to stimulate demand. Chinese leaders announced in December that China would formally implement a “moderately loose” monetary policy for the first time in 14 years and commit to “vigorously promoting consumption.”
The Producer Price Index, which measures factory gate prices, fell 2.3%, slightly better than analysts’ expectations for a 2.4% drop and a 2.5% contraction in November, but the indicator has been in deflationary territory for 27 consecutive months.
China’s economy has been teetering on the edge of outright deflation as a three-year housing slump has sapped consumer demand and pushed industry into oversupply.
China is expected to achieve its 5% economic growth target in 2024 thanks to government stimulus measures and booming exports, with domestic deflation enhancing the price competitiveness of exports in overseas markets.
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But analysts warn that the formula is gradually losing its effectiveness, with incoming U.S. President Trump threatening to impose damaging tariffs, which could lead to a sharp slowdown in China’s export growth.
Beijing has announced a number of stimulus measures, including a shift in monetary policy in September, mainly targeting the stock market and seeking to increase household wealth through rising stock prices.
Chinese state planners also expanded a subsidy program on Wednesday to encourage consumers to trade in items such as microwave ovens, electric cookers and dishwashers.
Economists have expressed doubts that these measures will be enough to reflate the economy and predict that consumer prices will be essentially flat this year and factory prices will continue to deflation for more than two years.
Analysts at Standard Chartered Bank pointed out that the consensus forecast for inflation this year is 0.9%, and there are “downside risks.”
“Overall CPI inflation is likely to turn negative and remain below 0.5% for much of 2025,” they wrote in a research note, adding that producer prices could fall by 2.5%. .
China’s benchmark 10-year government bond yield has hovered near record lows since the beginning of the year, which analysts say reflects investor expectations of a deflationary outlook for low economic growth.
Chinese stocks and 10- and 30-year sovereign bond yields were flat on Thursday.
In currency markets, the yuan was unchanged at 7.33 yuan against the dollar after the People’s Bank of China fixed the daily trading rate at 7.19 yuan.
China’s currency is allowed to trade within 2% of the daily rate set by the central bank.
