China’s consumer price index (CPI) fell by 0.3% year-on-year in December, after a dip of 0.5% in November. Food was a major driver for the change in December, said analysts at Nomura, while they also pointed to non-food price inflation inching up. Analysts at HSBC agreed the “main drag of headline CPI continued to stem from the weak food prices”, pointing particularly to pork prices. “The rebound in the year-on-year CPI reading was due to a sequential rise in some major components, as CPI inflation rebounded to 0.1% month-on-month in December from minus 0.5% in November,” said the analysts at Nomura. “Following the much weaker-than-expected reading for November, the latest December figure suggests economic momentum remained weak and that the latest economic dip is ongoing.” Overall last year, the annual CPI reading stood at a 13-year low of 0.2%.
China’s producer price index (PPI), which measures costs for goods at the factory gate, fell for the 15th consecutive month in December after dropping by 2.7% year-on-year. This was lower than the estimated dip of 2.6% polled by Wind, after the gauge had fallen by 3% in the previous month. The moderate uptick in December was largely driven by a lower base from last year, said analysts at Nomura. “The continued weakness in PPI inflation in December is largely due to lackluster domestic demand and the continued downturn in global energy prices,” they said.
In terms of trade, analysts at Moody’s Analytics expect China’s exports growth in the first six months of the year to be capped as high borrowing costs keep global demand soft. “As borrowing costs ease, trade should benefit. Meanwhile, the domestic economy will take its time to fully regain their mojo,” they said. HSBC Trade Economist Shanella Rajanayagam expects global trade to rise moderately in 2024 at 1.8% year-on-year from an estimated minus 0.7% in 2023.
“On China’s import demand, we expect the government to remain supportive to further unleash investment and consumption demand. We expect a soft landing for the property market which could further enhance consumer confidence,” said analysts at HSBC. In terms of inflation, Nomura expects China’s CPI inflation to remain low at 0.6% in 2024, with the gauge expected to fall back to minus 0.8% year-on-year in January. They expect PPI inflation to rise to minus 2.4% in January due to rising crude oil prices. “Chinese New Year effects mean that inflation will be volatile in the near-term. But over the course of this year, we think that food and energy price deflation will continue to ease, while the ongoing cyclical recovery in economic activity will underpin a slight rise in core inflation,” said analysts at Capital Economics. “That said, weak global growth and continued overinvestment in China means that deflation risks will continue to hang over its economy for some time,” the South China Morning Post reports.
