China inflation hits near three-year high, but producer deflation signals weak demand

Summary:China CPI rose 0.8% y/y, fastest since Feb 2023Monthly CPI beat expectations at +0.2%PPI fell 1.9% y/y, easing but still deflationaryCore inflation steady at 1.2%Weak demand and property stress remain key dragsChina’s consumer inflation accelerated in December to its fastest pace in nearly three years, while factory-gate prices remained in deflation, underscoring the persistent imbalance between improving headline prices and still-weak underlying demand.Data from the National Bureau of Statistics showed consumer prices rose 0.8% year-on-year, the strongest increase since February 2023 and slightly faster than November’s 0.7% gain. The result matched market expectations. On a month-on-month basis, CPI rose 0.2%, beating forecasts for a 0.1% increase and marking a clear rebound from November’s monthly decline.Core inflation, which strips out food and energy, rose 1.2% year-on-year, unchanged from the prior month, suggesting that underlying price pressures remain modest despite the pickup in headline inflation. Food prices rose 1.1% from a year earlier, while non-food prices increased 0.8%.By contrast, producer prices fell 1.9% year-on-year, slightly better than the expected 2.0% decline and easing from November’s 2.2% fall. The data extend China’s factory-gate deflationary streak beyond three years, highlighting continued excess capacity and weak pricing power across the industrial sector. More via CNBC round up:Economists say the data point to fragile domestic demand, even as growth remains broadly on track. Macquarie expects China’s consumer inflation to remain flat through 2025, while producer-price deflation is forecast to deepen, potentially marking the longest deflationary stretch on record. The bank warns that additional policy easing, including lower mortgage rates and relaxed home-purchase rules, may still fall short of reversing the property downturn.Meanwhile, Bank of America Global Research estimates China’s GDP growth softened to around 4.5% in the fourth quarter, from 4.8% previously, with fixed-asset investment contracting further even as industrial production benefited from a year-end manufacturing pickup.Despite a recent rebound in factory activity, policymakers face mounting pressure to support consumption and stabilise the property sector, as falling corporate profits and renewed price competition continue to weigh on confidence.
This article was written by Eamonn Sheridan at investinglive.com.

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