China December-24 CPI Inflation Report

Weak Consumer Demand Keeps Inflation Subdued and continued deflation at producer price level

Feb 08, 2025

Key takeaways:

China Consumer Price Index (CPI, non-seasonally adjusted) increased by 0.1% year-on-year (YoY) in December, lower than the 0.2% YoY observed in November.
Core CPI excluding fresh food and energy rose by 0.4% YoY in December, up from the 0.3% YoY recorded in November.
Consumer goods inflation entered a deflationary territory in December declining by 0.2% YoY versus a flat reading in November. Service inflation increased by 0.5% YoY, higher than the 0.4% YoY observed in November.
Producer Price inflation (all items) continued its deflationary trend by decreasing 2.3%YoY in December, up from the 2.5% YoY decline reported in November.
Overall, the latest data confirms the absence of inflationary pressures at the consumer level and the persistence of deflation at the producer level, reflecting weak demand and excess capacity.

Review of the Inflation Release

In December 2024, consumer prices decreased by 0.1% year-on-year (YoY), lower than the 0.2% YoY reading recorded in November (see Chart 1). On a month-to-month basis, consumer prices flatlined in December (0% MoM), compared to the 0.6% MoM decline reported in November, recovering from the deflationary trend in the last quarter of 2024.

In terms of core measures, the National Bureau of Statistics of China reports consumer price inflation excluding food and energy prices. In December Core Inflation rose by 0.4% YoY, higher than the 0.3% YoY observed in November. On a month-to-month (MoM) basis, it increased by 0.2% MoM, higher than the 0.1% MoM decline seen in November.

A relevant split that is provided at the level of China release is the distinction between consumer goods and services. In December 2024, consumer goods declined by 0.2% YoY following a no change (0% YoY) in November. On a monthly basis, consumer goods recorded a decline of 0.1% MoM, following the sharper 0.7% MoM decline in November.

Service inflation has increased by 0.5% YoY in December following a 0.4% YoY in November. On a monthly basis, service inflation has increased by 0.1% MoM, higher than the 0.3% MoM decline recorded in November.

In the case of China, we also report producer price indexes. We do so because, given China’s global manufacturing role, producer prices provide a good post for thinking about global inflationary pressures at the goods level.

We report three categories: all items, the means of production, and consumer goods.

In December 2024, producer prices continued their long-running deflationary streak. All items producer prices declined by 2.3% YoY following a 2.5% YoY decline in November. Producer prices (Means of Production) decreased by 2.6% YoY in December, following the 2.9% YoY decline in November indicating persistent lower input costs.

Lastly, in December 2024, producer prices for consumer goods declined by 1.4% YoY, unchanged from November's figure.

Share The Central Banks' Watcher

Summary

Overall, the inflationary outlook in China indicates emerging deflationary pressures at the consumer level and confirms the persistent deflationary trend at the level of producer level. This combination is consistent with an economic environment characterized by weak demand and excess capacity. This challenging environment might prompt further policy action by The People’s Bank of China (PBOC) and the Ministry of Finance.

Table 1: CPI by components (% YoY)