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China’s consumer prices remained in deflationary territory for the third consecutive month in December, adding to pressure on policymakers as they seek to restore confidence in the world’s second-largest economy.
The country’s consumer price index fell 0.3 per cent in December year on year, according to official statistics released on Friday. Producer prices dropped by 2.7 per cent.
Both measures fell slightly less than forecast amid widespread expectations of declines.
China’s economy was hit by deflation in July and prices have since been flat or fallen in every month except August, with November’s decline of 0.5 per cent marking the steepest drop in three years.
Deflation has joined an array of economic challenges facing Beijing, which has sought to loosen critical lending rates to counter a prolonged slowdown in a property sector that typically accounts for more than a quarter of economic activity.
Sustained weakness in consumer price growth in China reflects an incomplete recovery from three years of strict anti-pandemic policies, which were lifted a year ago but have continued to weigh heavily on fragile consumer sentiment.
For the course of 2023, inflation was slightly positive at 0.2 per cent but fell far short of an official upper target of 3 per cent. Officials are expected to target GDP growth of about 5 per cent in 2024, similar to the 2023 mark, which was the lowest in decades.
China’s producer price index, which reflects factory gate prices and is strongly affected by the global cost of raw materials and commodities, has declined every month since October 2022.
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 an 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, was positive at 0.6 per cent in December, flat from the month before.
