China's consumer prices fall in December as economic recovery lags

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China's consumer prices remained in deflationary territory for a third straight month in December, adding to pressure on policymakers to restore confidence in the world's second-largest economy.

According to official figures released on Friday, the country's consumer price index fell 0.3 percent in December on a year-on-year basis. Producer prices fell by 2.7 percent.

Both measures fell slightly less than forecast amid widespread expectations of declines.

China's economy hit deflation in July and prices were flat or fell every month except August, when a 0.5 percent decline in November marked the steepest drop in three years.

The deflation adds to a series of economic challenges facing Beijing, which has sought to ease key lending rates to counter a prolonged slowdown in the property sector, which typically accounts for more than a quarter of economic activity.

The lingering weakness in consumer price growth in China reflects an incomplete recovery from three years of strict anti-epidemic policies, which were lifted a year ago but continue to weigh heavily on weak consumer sentiment.

In 2023, inflation was slightly positive at 0.2 percent, but well below the official top target of 3 percent. Officials expect to target GDP growth of 5 percent in 2024, the same as in 2023, the slowest in decades.

China's producer price index, which reflects factory-gate prices and has been hit hard by global prices of raw materials and commodities, has declined every month since October 2022.

The People's Bank of China is expected to cut its medium-term lending facility on Monday – a policy tool that allows liquidity to flow into the financial system – for the first time since August. A Bloomberg survey of economists had expected a 0.1 percentage point decline, to 2.4 percent.

Policymakers have sought to ease restrictions on home purchases in major cities and quickly address signs of spillover risks after a wave of defaults by property developers from late 2021, including the country's largest private developer Country Garden last year.

Zhongzhi, a shadow banking firm that controls various investment firms, declared bankruptcy last week, six months after the missing money came to light.

China's CPI has been hit in recent months by volatile prices for pork, the largest item in the consumer basket of goods. Core inflation, which strips out energy and food, was 0.6 percent in December, flat from the previous month.