Chinese consumer prices barely rise as deflationary pressure weighs

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China’s consumer prices barely rose in December, underlining deflationary pressures in the world’s second-largest economy that have pushed bond yields to record lows.

Consumer price growth was 0.1 per cent last month against a year earlier, in line with an average analyst forecast from Reuters and the slowest in nine months. The reading released on Thursday was lower than 0.2 per cent growth in the previous month.

The producer price index, which measures factory gate prices, declined 2.3 per cent, slightly better than analyst estimates of a 2.4 per cent fall and a 2.5 per cent contraction in November. The December figure means the gauge has been in deflationary territory for 28 months.

China’s economy has been flirting with outright deflation for months as a three-year property downturn undermines consumer demand, pushing industry into oversupply.

Beijing is expected to meet its economic growth target of 5 per cent for 2024 through a mixture of booming exports, whose price competitiveness in overseas markets has been supercharged by deflation at home, and government stimulus measures.

But analysts warn the formula is wearing thin, with incoming US president Donald Trump threatening damaging tariffs that could prompt a sharp deceleration in China’s exports growth.

Beijing has also struggled to stimulate domestic demand despite a monetary policy pivot in September that largely targeted the stock market and sought to boost household wealth through higher equity prices.

The yield on the benchmark 10-year China government bond has been hovering around record lows since the start of the year, which analysts said reflected investor expectations of a low-growth, deflationary outlook for the economy.

Chinese equities were mixed in early trading on Thursday. The benchmark CSI 300 index was flat, while Hong Kong’s Hang Seng index rose 0.4 per cent. Yields on 10-year and 30-year sovereign bonds were flat.

In currency markets, the renminbi was flat against the dollar at Rmb7.33 after the People’s Bank of China fixed the daily trading rate at Rmb7.19.

China’s currency is allowed to trade within 2 per cent of the daily rate set by the central bank.