The consumer price index, a main gauge of inflation, is expected to witness a moderate increase this year, as China looks to bolster domestic demand and shift from the post-COVID consumption recovery to one of sustained expansion, officials and analysts said.
The underwhelming performance of the CPI over the past few months suggests certain challenges in maintaining price stability, and analysts said China's central bank may adopt a proactive approach, leveraging its monetary policy tools to further stimulate the economy and boost market confidence.
Data released by the National Bureau of Statistics on Wednesday showed that consumer prices in 2023 maintained a mild upward trajectory, with the CPI rising by a modest 0.2 percent over the course of the year.
The year-on-year decline in the CPI observed over the past three consecutive months has been, however, driven predominantly by structural and transitional factors, NBS head Kang Yi said at a news conference.
A closer examination of the structural factors influencing price levels reveals that the recent decline in prices has been primarily driven by a drop in food and energy prices, Kang said.
However, a look at the core CPI data — which excludes volatile food and energy prices — shows that it has demonstrated stability, he added.
Meanwhile, the decline in prices within the food and energy sectors has been influenced by a range of factors that extend beyond traditional market factors such as the Russia-Ukraine conflict, Kang said.
Moreover, the decline in the CPI is primarily of a temporary nature.
The Chinese economy shows signs of recovery and improvement, with stable growth in household incomes and expansion in domestic aggregate demand, fostering enabling conditions for the rebound of commodity and services prices, Kang said.
As domestic consumption turns for the better, coupled with the gradual return to balance between supply and demand, a potential rebound in overall price levels is anticipated in 2024, said Zhou Maohua, a macroeconomic researcher at China Everbright Bank.
While there have been positive developments in various sectors, domestic demand overall has fallen short of the desired levels, emphasizing the need for measures to lower consumption and investment costs, improve the profitability of businesses, and boost job creation, Zhou said.
The domestic economy is currently in a critical phase of recovery, and uncertainties remain with respect to the outlook on overseas demand.
To ensure a sustained momentum of economic growth, the People's Bank of China, the central bank, is likely to utilize various measures to support the real economy since it has previously signaled its intention to adjust macroeconomic policies when needed, Zhou added.
"We expect the central bank to eventually deliver two rounds of policy rate cuts and one reserve requirement ratio cut in the first half of 2024," said Lu Ting, chief China economist at Japanese financial services group Nomura.
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