Chinese consumer prices are not rising as deflationary pressure increases

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Chinese consumer prices did not rise sharply in December, underscoring deflationary pressures in the world’s second-largest economy that have pushed bond yields lower.

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

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

The Chinese economy It has been flirting for months with a three-year slump in inventories dampening consumer demand, leaving the industry overstocked.

Beijing is expected to meet its economic growth target of 5 percent for 2024 through a combination of imports, whose price competitiveness in overseas markets has been boosted by fiscal easing at home, and measures of government incentives.

But analysts warn that form is weakening, with incoming US president Donald Trump threatening crippling tariffs that could cause a sharp slowdown in China’s export growth.

Beijing has also struggled to stimulate domestic demand though Financial policy pivot in September which focused mainly on the stock market and sought to increase family wealth through high equity prices.

China’s 10-year government bond yield has been falling since the start of the year, which analysts said reflected investors’ expectations of lower growth, lower economic prospects.

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

In financial 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.

The Chinese currency is allowed to trade within a 2 percent daily rate set by the central bank.