Tepid prices spur call for demand uptick

China's consumer inflation slowed further in December, reflecting persistently lackluster demand and reinforcing calls by economists for stepped-up countercyclical adjustments to boost domestic demand and stimulate consumption.

Economists anticipate China's consumer prices to rise modestly in 2025, driven by targeted measures aimed at spurring consumption and a package of incremental policies taking effect gradually. Meanwhile, they still expect the largest single-year rate cut since 2015 this year, which will help consolidate the ongoing recovery in demand.

Data from the National Bureau of Statistics showed on Thursday that the country's consumer price index, a main gauge of inflation, rose by 0.1 percent year-on-year in December after a 0.2 percent rise in November.

Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, attributed the slower CPI growth to factors including increased supply, falling food prices as well as a high comparison base in the previous year.

"Fueled by government policies such as the trade-in deals for consumer goods, prices of nonfood items remained stable, with their year-on-year growth rate showing a slight increase compared to the previous month," he added.

NBS data showed nonfood prices posted a 0.2 percent rise compared with a year earlier in December, contributing to a 0.14 percentage point increase in annual CPI growth.

Meanwhile, China's producer price index, which gauges factory-gate prices, dropped by 2.3 percent from a year earlier in December, narrowing from a 2.5 percent fall in November.

"December marked the 27th consecutive month with the PPI in negative territory," Wang added. "This is mainly due to the ongoing correction in the domestic real estate market, a sharp decline in property investment. Meanwhile, weak final consumption continued to pressure industrial product prices and limited upward momentum in consumer goods prices."

Looking ahead, Wang said he expects the year-on-year PPI decline to narrow to around 2.1 percent in January due to a low comparison base in the previous year and the stepped-up macroeconomic policy support.

He said the CPI will likely rise by around 1 percent in January fueled by a notable surge in consumer demand for goods and services, as the Spring Festival holiday starts in January this year compared to February last year.

NBS data showed that core CPI, which excludes volatile food and energy prices and is deemed a better gauge of the supply-demand relationship in the economy, was 0.4 percent higher year-on-year in December, following a 0.3 percent increase in November.

"This marked the third consecutive month with the index in positive territory," said Wen Bin, chief economist at China Minsheng Bank. "A package of incremental policies has helped boost overall demand, contributing to the continued improvement in core CPI."

However, looking at the price trends in the fourth quarter, Wen noted that the GDP deflator is expected to remain in negative territory for a seventh consecutive quarter, indicating that price pressures remain significant.

The GDP deflator is the ratio of nominal GDP to real GDP, to gauge the change of prices of all goods and services produced in the country.

As the broader economy is still facing pressures from still-weak domestic demand and relatively low consumer confidence, Wen called for intensified efforts to strengthen countercyclical adjustments of macroeconomic policies.

"Promoting reasonable price recovery has become an important consideration for the central bank's monetary policy, which will remain accommodative," Wen said. "Together with proactive fiscal policies and other supportive policies, that will help boost consumer spending, expand domestic demand, stabilize market expectations and enhance the economy's endogenous driving forces."

Looking ahead to 2025, he said the year-on-year CPI growth is expected to accelerate with targeted policy measures aimed at boosting domestic demand and spurring consumption.

"More significant rate cuts are now clearly on the table," said Louise Loo, lead economist at British think tank Oxford Economics. "We expect a cumulative 40 basis point cut in the main policy rate and 150 basis points in the reserve requirement ratio in 2025."