Overview of China’s Inflation Performance

China’s deflationary pressures continued in December 2024, with headline Consumer Price Index (CPI) inflation easing further to 0.1% year-on-year (yoy). While the Producer Price Index (PPI) showed improvement, it remained in negative territory at -2.3% yoy. Notably, core CPI inflation edged higher to 0.4% yoy, marking a consecutive increase, supported by stronger services inflation. This trend is attributed to a rebound in global commodity prices, which is expected to provide further upside bias to PPI inflation in the coming months.

Key Highlights of CPI Trends

• Headline CPI: Declined to 0.1% yoy (-0.1 percentage points or ppt), aligning with Bloomberg’s consensus forecast.
• Food Inflation: Fell sharply to -0.5% yoy (-1.5ppt), driven by declining prices of fresh vegetables (0.5% yoy, -9.5ppt) and fruit (-3% yoy, -2.7ppt).
• Core CPI: Increased to 0.4% yoy (+0.1ppt), showing resilience due to stronger services inflation, which rose to 0.5% yoy (+0.1ppt).
• Transportation & Communications Prices: Declined by -2.2% yoy (-1.4ppt), primarily due to competitive pricing in the electric vehicle (EV) sector.
• Goods Prices: Fell marginally by -0.2% yoy (-0.2ppt).

Key Highlights of PPI Trends

The PPI deflation moderated to -2.3% yoy in December, slightly better than Bloomberg’s consensus of -2.4% yoy. The month-on-month (mom) improvement of 0.2ppt was driven by several sectors:

• Producer Goods: Improved from -2.9% yoy to -2.6% yoy (+0.3ppt).
• Raw Material Prices: Decline narrowed to -2.2% yoy (+0.7ppt).
• Sectors with Largest Inflation Gains:
  • Fuel and Power: -5.9% yoy (+0.6ppt).
  • Non-Ferrous Metal Materials and Wires: 11.4% yoy (+0.4ppt).
  • Building Materials and Non-Metallic: -2.3% yoy (+0.4ppt).
• Consumer Goods PPI: Remained stable at -1.4% yoy.

The rebound in global commodity prices is expected to further reduce the risk of intensifying deflationary pressures in the near future.

Detailed Breakdown of CPI and PPI Components

Consumer Price Index (CPI)

Producer Price Index (PPI)

Conclusion and Outlook

China’s inflationary trends for December 2024 reflect a delicate balance between persistent deflationary pressures and emerging positive signs in core CPI and PPI performance. The improvement in global commodity prices is a key factor that could mitigate deflationary risks and support producer prices in the coming months.