China’s CPI declines caused by structural and cyclical factors; mild price rise expected in 2024: NBS

The year-on-year decline in China's Consumer Price Index (CPI) over recent months is caused by structural and cyclical factors, while core CPI remained stable excluding the impact of food and energy prices. It is anticipated that CPI will see a mild rise in 2024, a Chinese official said on Wednesday.

Prices have fallen in China lately, led by a retreat in the cost of food and energy. Excluding the impact of food and energy prices, core CPI has remained stable, suggesting that the decline in prices was not widespread or broad-based, but rather cyclical and structural, head of the National Bureau of Statistics (NBS) Kang Yi told a press conference in Beijing.

In 2023, China's overall prices remained on a moderate upward trend, with the annual CPI rising by 0.2 percent, and the core CPI increasing by 0.7 percent, Kang noted.

As for the structural factors, the decline in food and energy prices is not solely a result of changes in market supply and demand dynamics. In 2022 and 2023, their prices were primarily influenced by non-economic and unconventional factors, Kang said.

Energy prices, particularly those of petroleum, play a substantial role in the CPI basket in China. In December 2023, energy prices witnessed a 0.5 percent drop, in contrast to the 5.2 percent increase in December 2022. The significant rise in energy prices in 2022 followed by a decline in 2023, with one acting as a positive factor and the other as a negative factor, has exerted a considerable downward pull on the year-on-year CPI comparison, Kang explained.

As for food prices, there was a 3.7-percent drop in December 2023, contrasting with a 4.8-percent rise in December 2022. The increase in December 2022 was caused by pandemic-related measures, leading to logistical challenges and an across-the-board rise in food prices. As the economy returned to normal, accompanied by ample supply, food prices eased from the high baseline of the previous year, he said.

As the Chinese economy continues to recover on the back of steady growth in income levels and an expansion in domestic market demand, there is a foundation for upward movement of prices. As the Spring Festival holidays approach, demand for food spending is rising. Increased activity in service spending, such as dining out, visiting relatives and friends, and trave will further drive the seasonal rise in CPI, Kang said.

In the first 10 days of January 2024, monitored data indicates food prices have remained generally stable, experiencing mild increases in some regions, he said.

The low-level operation of prices also reflects, to some extent, issues such as insufficient market demand, Kang said, noting that it is a cyclical phenomenon in China as the economy returns to normalcy after three years of pandemic impact. "In the short term, inadequate demand can lead to downward pressure on prices."

China's CPI saw a year-on-year decrease of 0.2 percent in October 2023, followed by declines of 0.5 percent in November and 0.3 percent in December, NBS data showed.

During the key annual Central Economic Work Conference held in Beijing in December 2023, policymakers stressed the need to expand domestic demand, noting that "efforts should be made to stimulate consumption with potentials and expand productive investment to create a virtuous cycle of mutual promotion between consumption and investment."

"The development of digital consumption, green consumption and health consumption should be further promoted, and new growth areas such as consumption of smart home appliances, entertainment and tourism, sports events and trendy domestic brands should be fostered," the meeting noted.

With the introduction of relevant policies, the issue of insufficient market demand will ease. As a result, consumer prices will most likely stabilize and rebound. "We anticipate a mild increase in prices in 2024," Kang said.