China’s Consumer Price Index (CPI) registered a marginal uptick in December, yet disinflationary pressures persist.

In December, Chinese consumer inflation saw a slight uptick due to increased spending during the year-end holidays. However, the persistent decline in producer inflation indicates a prevailing disinflationary trend.

According to data from the National Bureau of Statistics, Consumer Price Index (CPI) inflation expanded by 0.1% month-on-month in December. The figure fell short of the anticipated 0.2% increase but demonstrated an improvement from the 0.5% decline observed in the previous month.

In the year-on-year comparison, Consumer Price Index (CPI) inflation declined by 0.3%, slightly surpassing projections for a 0.4% drop and showing improvement from the 0.5% fall recorded in November.

Heightened holiday expenditures on travel and shopping primarily propelled the marginal enhancement in CPI inflation. Recent data indicates that Chinese New Year travel has exceeded pre-COVID levels, signaling a positive shift in consumer sentiment.

However, discretionary spending as a significant contributor to Chinese inflation continued to exhibit overall weakness. Higher unemployment and ongoing economic concerns led consumers to exercise caution in their spending, contributing to this subdued trend.

On the other hand, business spending experienced a more pronounced decline, with activity remaining sluggish in December.

Deteriorating factory activity contributed to a 2.7% year-on-year decline in Producer Price Index (PPI) inflation in December. This figure fell slightly below expectations for a 2.6% drop and was lower than the previous month’s reading of 3%.

The latest data indicates that Producer Price Index (PPI) inflation has persisted in contraction for the fifteenth consecutive month, highlighting limited improvement in business activity, particularly among China’s manufacturers, compared to the lows observed during the COVID era.

Beyond subdued domestic demand, Chinese factories have grappled with a prolonged decrease in international demand, exacerbated by deteriorating economic conditions in the nation’s major export markets, driven by elevated inflation and interest rates.

The data released on Friday indicates that Chinese expenditure has exhibited minimal signs of recovery, despite continuous monetary stimulus from the People’s Bank. Beijing now confronts the challenging task of implementing additional stimulus measures to bolster a post-COVID economic recovery, which did not materialize in 2023.

Fourth-quarter gross domestic product (GDP) data, scheduled for release next week, is anticipated to provide conclusive insights into the Chinese economy’s performance in 2023. Despite challenges, GDP is still projected to align with the government’s annual target of 5%.