China: Prices stayed weak in Dec, RRR cut in focus – UOB Group

China’s CPI inflation slowed for the fourth consecutive month to 0.1% y/y in Dec and was flat on a m/m comparison. The PPI deflation eased to -2.3% y/y in Dec while momentum eased to fall -0.1% m/m due to factors such as production offseason and international commodity price fluctuations, UOB Group’s Economist Ho Woei Chen notes.

Weak price pressure led by decline in food prices

“China’s inflation has remained subdued for the second straight year in 2024 with the headline and core inflation at 0.2% (2023: 0.2%) and 0.5% (2023: 0.7%) respectively. China’s PPI recorded its second full year contraction at -2.2% in 2024 (2023: -3.0%). We maintain our forecast for 2025 CPI inflation at 0.9% and PPI deflation at -1.2%.”

“The government’s stimulus has yet to provide a meaningful lift to private consumption and prices. China’s 4Q24 GDP due next Fri (17 Jan) is likely to see nominal growth weighed down by weak prices while we expect the real GDP growth to accelerate to 5.0% y/y (1.9% q/q) from 4.6% y/y (0.9% q/q) in 3Q24 with full-year 2024 growth at 4.9%.”

“We maintain our 2025 GDP growth forecast at 4.3%. Thus, we expect an additional 50-100 bps reduction to the RRR and 30 bps cut to the benchmark 7-day reverse repo rate (with loan prime rates to fall by 30 bps) in 2025. A near-term RRR cut will be in focus after the PBOC skipped a cut in Dec which it had flagged earlier.”