China CPI inflation beats expectations in Dec after easing of COVID curbs

By Ambar Warrick

Investing.com -- Chinese inflation perked up slightly in December, ducking expectations for a monthly decline as the lifting of strict anti-COVID restrictions appeared to be having the intended effect of supporting economic activity, albeit slightly.

The Chinese consumer price index remained flat in December from the prior month, performing slightly better than expectations for a decline of 0.1% and November’s decline of 0.2%.

On an annual basis, CPI inflation was in line with expectations for a rise of 1.8%, and was a shade higher than November’s reading of 1.6%.

The reading comes after the Chinese government began relaxing most anti-COVID measures in December, following increased public backlash against the draconian zero-COVID policy and signs of worsening economic growth.

China recently reopened its international borders for the first time in three years, cementing a pivot away from the zero-COVID policy that has ravaged local economic growth since 2020.

Readings on business activity signaled a mild improvement in conditions in December, although overall activity still remained comfortably in contraction as the country reels from the aftermath of rampant restrictions through 2022.

But while the lifting of lockdowns spelled some improvement in economic activity, it also resulted in China’s worst-yet COVID-19 outbreak. Markets fear that increasing infections could stymie a bigger economic bounceback in the near-term.

This was also reflected in producer price index data for December, which shrank 0.7% on an annual basis. While the figure was an improvement over the 1.3% drop seen in November, it also missed expectations for a contraction of 0.1%, indicating that the country’s massive manufacturing sector was seeing a relatively sluggish recovery.

Still, the improving inflation data signals that the lifting of COVID-19 lockdowns is indeed having a positive effect on the Chinese economy, and could signal a bigger recovery eventually this year. The economy is also set to benefit as the effects of pandemic-era stimulus measures kick-in and as the government undertakes more spending to shore up growth.

The Chinese yuan rose 0.2% after the inflation reading and was trading near its strongest level in nearly five months.