China inflation hits fastest pace in nearly three years in December, as expected

Consumer inflation in China reached its fastest pace in almost three years in December, while factory gate deflation remained steady, signaling that underlying demand in the economy remains weak.

According to data, consumer prices increased by 0.8% compared to the previous year and reached their highest level since February 2023. Office for National Statistics on Friday. This improvement followed a 0.7% increase in November and met economists’ expectations in a Reuters poll.

Ex-factory prices fell 1.9% in December from a year earlier, better than the 2% decline predicted and pushing the deflationary line beyond three years. This decline follows a 2.2% decline in November.

Core inflation, which excludes volatile food and energy prices, increased by 1.2% annually in December, unchanged from the previous month.

On a monthly basis, consumer prices rose 0.2%, above the 0.1% increase expected in a Reuters poll.

While China was on track to meet its growth target of around 5% last year, the economy continued to face deflationary pressure. Consumers remain reluctant to spend due to an uncertain employment outlook and a prolonged property crisis that is eroding household wealth.

Larry Hu, Macquarie’s chief China economist, expects China’s annual consumer inflation to remain at the same level in 2025, while producer price deflation is forecast at 2.7%, which would mark the longest deflationary streak in history.

China’s real GDP growth will likely fall to 4.5 percent in the fourth quarter from 4.8 percent in the third quarter, a team of economists from Bank of America Global Research said.

The Wall Street bank said the contraction in fixed asset investment likely deepened in December, falling about 11.8% from a year earlier, compared with an 11.1% decline in November. The increase in industrial production is estimated at around 4.9%, supported by the recovery in manufacturing activities and the “usual year-end acceleration in production”.

China’s manufacturing activity expanded unexpectedly in December, posting a record decline for the eighth consecutive month. The official purchasing managers’ index (PMI) rose to 50.1 from 49.2 in the previous month, above the 50-point threshold that separates growth from contraction.

At a key economic policy-making meeting in early December, the ruling Communist Party leadership reiterated plans to boost consumption and stabilize the real estate market, although similar promises in the past have failed to produce meaningful results.

A. last article A call published by Qiushi Journal, the Communist Party’s flagship magazine, called for “the implementation of a stronger, comprehensive package of measures to stabilize the real estate sector, rather than a piecemeal approach.”

Macquarie’s Hu said the government could take further easing measures in the near term, including lowering mortgage rates and easing home-buying restrictions. However, Hu warned that these measures “may not be strong enough to reverse the trend” and predicted that new home sales will fall 7 percent in 2026, following an 8 percent decline in 2025.

Chinese policymakers have also stepped up efforts to stem intense price wars that are hurting business profitability and ordered production cuts in some sectors to curb oversupply.

Still, industrial firms’ profits fell by 13.1% year-on-year in November; This was the steepest decline in more than a year.

Automobile manufacturers in the country have launched an application. new round of price cuts The benefits came as demand remained stagnant at the beginning of this year and the government withdrew some of its tax incentive for eligible electric vehicles.

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