China narrowly avoided deflation in December, according to official data released Thursday, confirming the continued difficulties of the world’s second-largest economy despite the government’s recovery efforts. The consumer price index increased by only 0.1% in December year-on-year, compared to 0.2% in November, according to the National Bureau of Statistics (NBS).
This figure, a key barometer of the vitality of household consumption and economic activity, is in line with the forecasts of economists surveyed by the Bloomberg agency. Unlike the inflation seen in many countries, China faces price stagnation, a phenomenon that slows economic growth and increases the real value of debts.
Beijing has increased its stimulus plans in recent months in the hope of boosting activity and permanently removing the specter of deflation. “Recent economic data has stabilized, but the momentum is not yet strong enough to generate upward pressure on consumer prices,” analyzes Zhiwei Zhang, chief economist at Pinpoint Asset Management, in a note. “Deflationary pressure persists,” he continues.
Fall in food prices
Over the whole of 2024, the consumer price index increased by only 0.2%, according to the BNS. In December, the prices of food and consumer goods even fell (-0.5% and -0.2% respectively over one year), according to the same report.
-China faces a persistent crisis in the real estate sector, which is weighing on consumer morale and local finances. Its last period of deflation dates back to the beginning of 2024, marked by the sharpest contraction in consumer prices in 14 years. Beijing has announced in recent months interest rate cuts, relaxation of restrictions on the purchase of housing, and even an increase in the debt ceiling for local governments.
Xi Jinping calls for being “proactive”
Chinese President Xi Jinping himself called for the implementation of a more “proactive” macroeconomic policy for 2025 at the end of 2024, according to official media. The inflation outlook for 2025 “will largely depend on the effectiveness of fiscal policy,” concludes Zhiwei Zhang.
China is due to announce the official growth figure for 2024 next week. Xi Jinping said last week that the target of “around 5%” would be achieved. But according to some forecasts, China slightly missed this target. The International Monetary Fund (IMF) thus anticipates growth of 4.8%, before a further slowdown (+4.5%) in 2025.
