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In December, China saw minimal growth in consumer prices, highlighting deflationary pressures in the second-largest economy globally, leading to record-low bond yields.
Last month, consumer prices only increased by 0.1% year-on-year, matching analyst expectations and marking the slowest growth in nine months. This figure was lower than the 0.2% growth recorded in the previous month.
The producer price index, which tracks factory gate prices, declined by 2.3%, slightly better than the projected 2.4% decrease and the 2.5% contraction in November. This marks the 28th consecutive month of deflation for the index.
China’s economy has been on the verge of deflation for several months due to a prolonged property slump affecting consumer demand and causing oversupply in the industry.
It is anticipated that Beijing will achieve its 5% economic growth target for 2024 through a combination of robust exports, benefiting from enhanced price competitiveness in global markets due to domestic deflation, and government stimulus efforts.
However, analysts caution that this strategy may not be sustainable, especially with incoming US president Donald Trump threatening detrimental tariffs that could lead to a sharp decline in China’s export growth.
Beijing has also faced challenges in boosting domestic demand, despite a monetary policy shift in September that primarily targeted the stock market and aimed to increase household wealth through higher equity prices.
The yield on China’s 10-year government bond has remained at historic lows since the beginning of the year, reflecting investor expectations of a sluggish, deflationary economic outlook.
Early trading on Thursday showed mixed results in Chinese equities, with the CSI 300 index remaining flat and Hong Kong’s Hang Seng index rising by 0.4%. Yields on sovereign bonds with maturities of 10 and 30 years remained unchanged.
In currency markets, the renminbi traded steadily against the dollar at Rmb7.33 after the People’s Bank of China set the daily trading rate at Rmb7.19.
The Chinese currency is allowed to fluctuate within 2% of the central bank’s daily rate.