China’s consumer prices in longest streak of declines since 2009

China’s consumer prices in longest streak of declines since 2009

China’s consumer prices dropped for a third straight month in December, a sign of weak domestic demand that’s leading economists to call for more stimulus.

China’s consumer price index slipped 0.3%, the national statistics bureau said in a statement Friday, the longest streak of declines since October 2009. Economists expected a 0.4% drop.

China’s producer price index, which measures factory-gate prices, fell 2.7% on-year. Economists forecast a 2.6% decline.

The world’s second-biggest economy has been battling deflation, in part due to factors including an ongoing property slump, low consumer confidence and weak exports.

That’s a concern for the economy because falling prices lead to lower corporate revenues, potentially hitting wages and profits. Deflation can also increase debt burdens and encourage consumers to delay purchases.

Core inflation, which strips out volatile food and energy prices, was 0.6% in December. For the whole of 2023, the consumer price index rose 0.2%, compared with an official target for about a 3% increase.

“China needs to act boldly to break the deflationary cycle. It will fall into a negative spiral otherwise,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “Deflationary pressure remains high in China. We see firms are cutting selling prices. Migrant workers are also slashing their asking wages.”

He added that the People’s Bank of China may implement easing measures soon, including potential rate cuts and lowering the amount of money banks must keep in reserve.

The offshore yuan was little changed at about 7.17 per dollar. China’s 10-year government bond held steady at 2.5%, after dropping to the lowest in nearly four years earlier this week as traders loaded up bets on further PBOC easing.