China's Consumer Inflation Slows Further in December, Stoking Deflation Worries

China's consumer price index (CPI), a key gauge of inflation, slowed further in December, raising concerns about deflation and underscoring the challenges facing the world's second-largest economy. The CPI rose just 0.1% year on year in December, according to data from the National Bureau of Statistics, marking the slowest pace since November 2022. This deceleration comes despite a range of stimulus measures introduced by the Chinese government since last September, including interest rate reductions, support for the stock and property markets, and increased bank lending.



The slowdown in consumer inflation is a worrying trend for China, as it indicates that the country continues to struggle with weak domestic demand. Consumption has failed to pick up despite the government's efforts to boost spending, with retail sales growth remaining sluggish. In 2024, China's GDP growth is expected to be around 4.3%, which is below the government's target of "near 5%" expansion for the year. This slowdown is partly attributed to the persistent sluggishness of the consumer market, as well as the ongoing property market downturn and trade tensions with the United States.

To address the primary economic contradiction of weak domestic demand, China must focus on raising household incomes and driving consumption motivation. Tax reforms, such as raising the personal income tax threshold and lowering personal income tax rates, could directly benefit middle and lower-income earners, increasing their disposable income and encouraging spending. Additionally, fiscal policy can be used to promote large-scale equipment upgrades and the replacement of old consumer goods with new ones, further stimulating consumer spending.

China's producer price inflation also continued to decline in December, falling by 2.3% year on year. This marks the 27th consecutive month of deflation in the producer price index (PPI), indicating a significant mismatch between supply and demand that is depressing prices. The ongoing near-zero consumer inflation and producer price deflation have raised concerns about the potential for a deflationary spiral, which could further dampen consumer spending and business investment.

To boost consumer spending and inflation, China can implement a range of policy measures, including tax reforms, fiscal policy, financial support, job creation, and the promotion of new consumption models. By addressing the root causes of weak domestic demand and implementing targeted policies, China can stimulate consumer spending and boost inflation, thereby addressing the primary economic contradiction and fostering sustainable economic growth.

In conclusion, China's consumer inflation slowdown in December has raised concerns about deflation and underscored the challenges facing the world's second-largest economy. To address these challenges, China must focus on raising household incomes, driving consumption motivation, and implementing targeted policy measures to stimulate consumer spending and boost inflation. By doing so, China can foster sustainable economic growth and overcome the primary economic contradiction of weak domestic demand.