China factory deflation continues as Covid-19 outbreaks spread

BEIJING – China’s factory-gate prices fell more than expected in December while consumer inflation ticked up, as

the sudden end to the zero-Covid policy

snarled factory operations but eliminated mobility curbs that had weighed on activity for much of 2022.

The producer price index (PPI) fell 0.7 per cent in December from a year earlier, after declining 1.3 per cent in the previous month, the National Bureau of Statistics (NBS) said on Thursday. Economists surveyed by Bloomberg had expected a 0.1 per cent drop.

Consumer inflation gained 1.8 per cent, compared with a 1.6 per cent increase in November, in line with economist expectations. Core inflation, which excludes volatile food and energy prices, picked up slightly to 0.7 per cent after staying unchanged at 0.6 per cent for three straight months.

Consumer prices “were generally stable” in December, thanks to multiple measures to ensure market supply and price stability, said NBS chief statistician Dong Lijuan. The year-on-year drop in PPI narrowed owing to a lower base of comparison with the same period a year earlier.

The data comes during what other economic indicators have suggested was the weakest month for economic activity in China since early 2020 and the beginning of the Covid-19 pandemic.

Surging infections following the abrupt reversal of zero-Covid pushed activity off a cliff as people became ill or stayed home for fear of catching the virus. Factory production and new orders in December both contracted the most since April 2022, during Shanghai’s lockdown.

Major cities experiencing outbreaks did not begin to rebound until near the end of the month, high-frequency data measuring subway usage and other mobility data showed.

Consumer prices had been subdued for quite some time as demand remained weak, especially in the services industry.

Activity in that sector shrank in December by a magnitude that has not been seen since the initial Covid-19 outbreak about three years ago.

The economic pain is not likely to abate quickly. While China’s major cities are showing signs of recovery, Covid-19 infections are expected to spread elsewhere in the country amid a busier-than-usual travel rush during the annual key holiday season.

Economists, though, expect a faster rebound once infections peak. The median estimate among economists surveyed by Bloomberg is for gross domestic product to expand 4.8 per cent in 2023, accelerating from an estimated 3 per cent in 2022. BLOOMBERG