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China's Continued Deflation Spurs Calls for Increased Policy Action

China's consumer prices continued their decline, marking the longest deflationary period since 2009. This persistent trend has led to a 0.3% YoY drop in the consumer price index for the third consecutive month. Simultaneously, factory-gate costs fell by 2.7% YoY due to reduced commodity prices and sluggish domestic and international demand.

That said, December's CPI decrease was less steep compared to the previous month. Food prices declined by 3.7%, a slight improvement from November's 4.2% fall. Core inflation, excluding volatile food and energy prices, remained steady at 0.6% YoY, mirroring November's rate.

Our Take: This will certainly put pressure on policy makers to act, perhaps as soon as next week, with at least a cut in the reserve requirement ratio (RRR) now very likely. To avoid a sharper deflationary spiral, more action is probably needed (fiscall policy) to reach the government's growth target (expected at 5%), which will be officially announced in March.


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