Chinese consumer inflation increased slightly in December as the year-end holidays boosted spending, although a sustained decline in producer inflation showed that a disinflationary trend was still decidedly in play.
Consumer price index (CPI) inflation grew 0.1% month-on-month in December, data from the National Bureau of Statistics showed on Friday. The reading was lower than expectations for a rise of 0.2%, but picked up from a 0.5% drop seen in the prior month.
Year-on-year, CPI inflation fell 0.3%, slightly beating estimates for a drop of 0.4% and improving from the 0.5% fall seen in November.
The marginal improvement in CPI inflation was driven chiefly by increased holiday spending on travel and shopping. Recent data showed that Chinese travel during the New Year had surpassed pre-COVID levels, reflecting some improvement in consumer sentiment.
But overall discretionary spending- which is a major driver of Chinese inflation- still remained largely weak, as higher unemployment and persistent concerns over the economy saw consumers tighten their purse strings.
Business spending, however, fared much worse, as activity failed to pick up in December.
Weak factory activity saw producer price index inflation (PPI) fall an annualized 2.7% in December, against expectations for a drop of 2.6% and the prior month’s reading of 3%.
The reading showed PPI inflation remaining in contraction for a fifteenth consecutive month, with business activity- particularly China’s manufacturers- seeing little improvement from COVID-era lows.
In addition to weak local demand, China’s factories have been struggling with a sustained decline in overseas demand, as economic conditions in the country’s biggest export markets worsened amid high inflation and interest rates.
Friday’s reading shows that Chinese spending saw little signs of recovery despite consistent monetary stimulus from the People’s Bank. Beijing now faces an uphill battle to roll out more stimulus and shore up a post-COVID economic rebound, which failed to materialize in 2023.
Gross domestic product data for the fourth quarter is due next week, and is set to offer definitive cues on the Chinese economy for 2023. GDP is still expected to meet the government’s 5% annual target.