Updated January 15th, 2024 at 15:08 IST

China grapples with rising deflation as prices fall

In December, the consumer price index (CPI) fell for the third consecutive month, recording a 0.3% drop year-on-year.

Reported by: Business Desk
China | Image:Pexels
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China’s economy: China's economy grapples with escalating deflationary pressures as prices continue to decline, stressing upon the challenges in achieving a robust recovery. 

In December, the consumer price index (CPI) fell for the third consecutive month, recording a 0.3 per cent drop year-on-year and a modest 0.1 per cent increase month-on-month, according to data from the National Bureau of Statistics (NBS). 

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Image Credits: Pixabay

This follows November's 0.5 per cent decline in both annual and monthly terms, deviating from economists' expectations of a 0.4 per cent year-on-year decrease and a 0.2 per cent month-on-month gain.

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The decline in CPI was primarily driven by a major 26.1 per cent drop in pork prices, although the rate of decline narrowed by 5.7 percentage points. Notably, services inflation demonstrated resilience, with tourism and hotel accommodation prices rising by 6.8 per cent and 5.5 per cent, respectively.

On the production front, the producer price index (PPI) continued its prolonged descent, falling by 2.7 per cent in December, marking the 15th consecutive month of declines. 

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Analysts had anticipated a 2.6 per cent slide. This persistent weakness in demand across the economy underscores the need for vigilant policymaking to counter entrenched expectations of price falls. 

China's central bank has committed to implementing macroeconomic policy adjustments to support the economy and stimulate price rebounds.

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Despite some positive signals in private-sector survey data indicating faster growth in factory and services activities, the broader economic recovery remains uneven. 

Challenges such as a prolonged housing downturn, a soft job market, and debt risks continue to weigh on growth prospects. Consumer spending has been constrained, with full-year CPI rising by only 0.2 per cent, falling short of the official target of around 3 per cent for the year and marking the 12th consecutive year of undershooting annual inflation targets.

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To bolster the economy, the People's Bank of China (PBOC) has taken measures, including lifting policy bank loans through its pledged supplementary lending (PSL) facility. 

Plans to issue 1 trillion yuan ($139.39 billion) in sovereign bonds to fund investment projects, along with commitments to proactive fiscal policy in 2024, signal an emphasis on fiscal spending to drive economic revival.

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(With Reuters Inputs)

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Published January 12th, 2024 at 08:25 IST