China's consumer inflation rate slowed further in December, raising fears of deflation

Consumer prices in China rose in December by 0.1% year-on-year, in line with expectations, data from the National Bureau of Statistics showed on Thursday, but a slower rise than the previous month raised fears of deflation.

Analysts polled by Reuters had expected the CPI to fall to 0.1% in December from 0.2% in November on an annual basis.

China's producer price inflation fell by 2.3% year-on-year in December, declining for the 27th month. This reading is slightly better than Reuters estimates, which indicated a decline of 2.4%.

Continuing consumer inflation near zero indicates that China is still suffering from weak domestic demand that has raised the specter of deflation.

Consumption has failed to rise despite a raft of stimulus measures introduced by Beijing since last September, which included interest rate cuts, support for stock and real estate markets, and increased bank lending.

Last Wednesday, China expanded a consumer trade scheme aimed at stimulating consumption through equipment upgrades and subsidies.

However, some metrics suggest that the Chinese economy may see some recovery. Factory activity in the country has expanded over the past three months, although the pace of expansion slowed in December.

“Although the Chinese economy showed some signs of recovery after the policy shift in September, it still faces challenges,” said Carlos Casanova, chief economist at private bank Union Bancaire Privée, citing headwinds in the country’s real estate sector and trade tensions with the United States. “Big.”

Louise Lu, chief economist at Oxford Economics, expects China's path to economic recovery will remain disappointing by most estimates given the continued weakness in consumer spending appetite.

The Chinese yuan recorded in the local market on Wednesday its lowest level in 16 months at 7.3316 against the dollar, with Treasury bond yields rising and the dollar strengthening.