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Highlights
- Core inflation rises 0.4%, signaling the impact of policy measures.
- Headline inflation drops to a nine-month low, mainly due to weather volatility.
- Experts warn that the economic support from stimulus measures may be temporary.
In December, China's core inflation saw a modest rise, increasing by 0.4%. This marked its third consecutive month of growth, which signals that the government's stimulus measures are effectively supporting demand and prices across various sectors. Core inflation is a key indicator as it excludes volatile food and energy prices, offering a clearer picture of price pressures within an economy.
This uptick in core inflation follows a 0.3% increase in November, and shows that the economic support driven by government measures is producing positive outcomes, potentially stabilizing the economy. While this development has been welcomed by some analysts, many are cautious about its longevity. The boost in demand and pricing power from these fiscal and monetary interventions might be short-lived, especially in the face of external pressures such as global market trends.
In contrast, headline inflation – which includes food and energy prices – dipped to a minimal 0.1% in December, from 0.2% the month prior. The primary reason for this drop was related to fluctuations in food prices, which are often affected by seasonal or weather-related events. While lower headline inflation could appear favorable at first glance, the underlying inflationary pressures remain in focus as food prices can be unpredictable.
Julian Evans-Pritchard, the Head of China Economics at Capital Economics, explained that although the recent rise in core inflation shows improvements across multiple sectors, the effects of the government's stimulus measures may not last beyond early 2025. The possibility of inflationary pressures easing towards the end of the year is a factor that economic experts are closely monitoring, particularly for businesses like (ASX:XRO), which relies on demand within the Chinese economy.
Policy adjustments are likely to remain in place through 2025, with China’s government balancing short-term stabilization against potential long-term challenges. The mix of strong government stimulus and external economic factors is bound to influence China’s inflation and broader market outlook.
Despite the temporary nature of some government interventions, the current inflationary trends demonstrate resilience in key sectors, which could potentially benefit companies with significant exposure to the Chinese economy, such as (OTC:JD), known for its widespread influence in Chinese e-commerce, or (NYSE:TSM), a prominent player in global semiconductor manufacturing.
China's current inflation situation highlights the tension between stimulating short-term growth and managing long-term sustainability. As 2025 unfolds, the focus will remain on how much longer these stimulus-driven effects can carry the economic momentum.
