Morning Market Brief
China’s annual inflation rate slowed to its lowest level in nine months in December, raising concerns that China’s economy could enter a period of deflation. Deflation is a drop in the prices for consumer goods and services, and ultimately, has an adverse impact on economic growth. In response, China’s government is trying to take steps to boost inflationary pressures. This contrasts with many other economies that are seeking to bring inflation down.
- China’s inflation rate fell to 0.1% year-over-year in December. This was China’s slowest rate of inflation since March 2024, raising concerns about deflationary risks. Food and transport prices dropped, while the price growth for education slowed.
- China’s economy has struggled for traction amid soft domestic demand and a weak property market. China’s economic growth in 2024 is on pace to miss the government’s target.
- China’s government worries that deflation could hinder growth further. Consumers could delay spending, expecting lower prices in the future. This, in turn, could weigh on corporate revenues, bringing down business investment and the job market.
- The situation in China contrasts with other places around the world. In recent days, 10-year bond yields in the UK have risen to their highest level since 2008 amid concerns about high inflation and weak economic growth. Europe reported that its annual inflation rate moved higher in December.
China’s government has implemented measures to support its economy and elevate inflationary pressures. However, those measures have had little impact thus far. Late in 2024, the government announced it would seek to do even more to ward off the threat of deflation and help lift economic growth. Weakness in China has an impact on many major economies around the world, including here in Canada. The global economy benefits from a relatively strong Chinese economy.
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