China's consumer prices rose at their quickest pace in nearly three years this December, according to official data released on Friday. This marks a continuation of growth after a prolonged period of deflationary pressures that gripped the world's second-largest economy.
Key Inflation Data and Drivers
The National Bureau of Statistics (NBS) reported that the Consumer Price Index (CPI), a primary gauge of inflation, increased by 0.8 percent year-on-year in December 2024. This figure matched a forecast by Bloomberg and represents the most significant jump since February 2023, when prices were up by one percent.
NBS statistician Dong Lijuan attributed the rise to heightened consumer demand as the new year approached. In an official statement, Dong noted, "Policies aimed at expanding domestic demand and promoting consumption continued to show results." She highlighted that the increase was primarily driven by a surge in food prices, partly due to adverse weather conditions.
Contrasting Annual Trends and Persistent Challenges
Despite the December uptick, the broader picture for 2024 remained weak. The NBS data showed that the average inflation rate for the entire year stood at zero percent. According to Bloomberg, this was the lowest full-year level China has seen since 2009.
Furthermore, the Producer Price Index (PPI), which measures the cost of goods at the factory gate, told a different story. The PPI fell by 1.9 percent on-year in December, slightly better than the two percent decline forecast in a Bloomberg survey. Crucially, the PPI has been stuck in deflationary territory for over three years, reflecting persistently weak demand and a global oversupply of Chinese manufactured goods.
Expert Analysis and Economic Warnings
Economists caution against interpreting the December CPI rise as a sign of robust economic recovery. Zichun Huang, an economist at Capital Economics, pointed out that the headline CPI inflation edged up to its highest level since China ended its zero-COVID policy. However, she clarified in a research note, "But this was due to a weather-related pickup in food prices rather than success of the 'anti-involution' campaign." This campaign is a government policy designed to combat damaging price-cutting and excessive competition.
Huang issued a stark warning about the unresolved structural issues. "Without stronger demand-side measures, we think overcapacity and the resulting deflationary pressures will persist in the coming years," she stated. This sentiment underscores the limited success of Beijing's attempts to pivot its growth model away from heavy reliance on exports and manufacturing towards domestic consumption.
The data presents a mixed economic outlook for China. While temporary factors provided a boost to consumer prices, the deep-seated problems of weak industrial demand, manufacturing overcapacity, and deflationary risks in the producer sector continue to pose significant challenges to sustainable growth.
