Market News International:

Recent data shows that China's CPI was negative for the third consecutive month in December. What is the outlook for CPI and will the government take any measures to address the low-rate inflation? Thank you.

Kang Yi:

Thank you for your questions. The issue of prices is of great concern throughout society. Looking at the Overall, prices in China have maintained a moderate upward trend in 2023, with a 0.2% increase in annual CPI. As the reporter mentioned, CPI has fallen for three consecutive months. However, when analyzing this issue, it is crucial to consider not only the overall data but also the structural and cyclical aspects influencing the year-on-year decline in CPI over these months.

First, let's talk about structural aspects. Recently, the decline in prices is primarily due to the fall in food and energy prices. Excluding the impact of food and energy prices, the core CPI remains stable. This indicates that the decline in these prices is not universal or comprehensive but rather partial and structural. The decrease in food and energy prices is not solely a result of market supply and demand changes. Over the past two years, from 2022 to 2023, it has been influenced by non-economic and non-conventional factors. Let's talk about energy first. Energy prices, especially oil prices, have a relatively significant weight of in our country's CPI basket. In December 2023, energy prices dropped by 0.5%, while they increased by 5.2% in the same period the previous year. As everyone knows, energy prices were primarily affected by the Russia-Ukraine conflict, with a substantial increase in 2022 and a subsequent decline in 2023, resulting in a significant year-on-year downward pull. Let's turn to food next. In December 2023, food prices decreased by 3.7% compared to the same period in the previous year, when they increased by 4.8%. In December 2022, the main influence was the pandemic, causing disruptions in logistics and a general rise in food prices. As normal operations resumed, ample supply led to a natural decline in food prices compared with high levels in the previous year.

Second, the decline in CPI is temporary. Especially as China's economy continues to recover and improve, with steady income growth for residents and an expansion of total demand domestically, there is a foundation and conditions for the upward movement of commodity and service prices. With the approaching Spring Festival holiday, there is also an increase in food consumption demand. Service consumptions such as dining out, visiting relatives and friends, and tourism are increasing, which will all help to boost the seasonal rebound in CPI. From a monthly perspective, CPI rose by 0.1% in December 2023. In early January 2024, according to data, some food prices have maintained a stable and slightly rising trend. Besides supply and demand, prices are also influenced by expectations. Recent developments indicate a marginal recovery in both enterprise and resident confidence. In December, the manufacturing production and operation outlook index for activities reached 55.9%, and the non-manufacturing business operation outlook index reached 60.3%, both are in a relatively high range for prosperity. In the fourth quarter, the business prosperity index for enterprises above designated size was 109 points, an increase of 0.4 point from the previous quarter. The consumer confidence index in December increased by 0.6 point compared to the previous month.

Third, the low-level operation of prices also reflects issues such as insufficient effective demand. Insufficient effective demand is a phased phenomenon in our country as the economy gradually returns to a normal state after the three-year impact of the pandemic. Short-term insufficient demand can lead to a decline in prices. The central government attaches great importance to the issue of insufficient demand. The Central Economic Work Conference, while planning for the economic work in 2024, clearly emphasizes the need to focus on expanding domestic demand, promoting the shift of consumption from post-pandemic recovery to sustained expansion. It also specifies a series of concrete work directions. With the introduction and implementation of these policies from the Central Economic Work Conference, the issue of insufficient effective demand is expected to be gradually alleviated, and the stable rise of consumer prices is expected to stabilize and rebound accordingly. We predict that prices will rise moderately in 2024. Thank you.