China’s inflation data for December has raised fresh concerns over deflationary pressures, underscoring the persistent challenges facing the world’s second-largest economy as it grapples with weak domestic demand.

China’s consumer inflation edges lower

China’s consumer price index (CPI) rose just 0.1% year-on-year in December, according to data from the National Bureau of Statistics (NBS).

The reading matched consensus estimates but marked a slowdown from the 0.2% increase in November.

Core CPI, which excludes volatile food and energy prices, rose 0.4% year-on-year, slightly improving from a 0.3% gain in the previous month.

On a month-on-month basis, CPI remained flat, compared with a 0.6% decline in November.

Food prices weigh on inflation

Food prices fell 0.6% month-on-month, driven by favorable weather conditions.

Notable declines included a 2.4% drop in fresh vegetable prices and a 1% decrease in fresh fruit prices.

Pork prices, a critical component of China’s CPI basket, fell 2.1% month-on-month but remained elevated year-on-year, up 12.5%.

Wholesale prices continue to slide

Producer price inflation (PPI) fell 2.3% year-on-year in December, marking the 27th consecutive month of decline.

The figure slightly outperformed Reuters expectations of a 2.4% drop.

On a monthly basis, PPI slipped 0.1%, reversing a 0.1% rise in November.

According to the NBS, infrastructure and real estate project suspensions during the off-season reduced demand for steel and other materials, contributing to the decline.

What is behind deflation concerns in China?

The near-zero consumer inflation reflects China’s ongoing struggle with subdued domestic demand, raising fears of a deflationary spiral.

Despite various stimulus measures implemented by Beijing since September—such as interest rate cuts, support for the stock and property markets, and increased bank lending—consumer spending has yet to show significant improvement.

Earlier this week, China introduced a consumer trade-in scheme designed to encourage equipment upgrades and provide subsidies, aiming to stimulate consumption further.

China’s economic recovery

Some economic indicators suggest a potential for recovery.

Factory activity has expanded for three consecutive months, though at a slower pace in December.

President Xi Jinping’s administration has identified boosting domestic demand as a top priority for 2025, marking only the second time in over a decade that this issue has taken precedence.

Authorities have pledged to deploy greater public borrowing and fiscal spending, along with additional monetary easing, to stimulate growth.

China’s onshore yuan hit a 16-month low of 7.3316 against the US dollar on Wednesday, weighed down by strengthening US Treasury yields and a robust dollar.

The weakening currency underscores the broader challenges facing China’s economy as it strives to combat deflation and reignite growth momentum.

The coming months will be critical in determining whether Beijing’s policy measures can effectively counter deflationary pressures and revitalize domestic demand.

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Federal Reserve officials at their December meeting expressed concern over inflation and the impact that President-elect Donald Trump’s policies could have, indicating that they would be moving more slowly on interest rate cuts because of the uncertainty, minutes released Wednesday showed.

While none in the Federal Open Market Committee (FOMC) took Trump’s name, minutes have shown that at least four mentions were made about the impact that changes in immigration and trade policy could have on the US economy.

“Participants expected that inflation would continue to move toward 2%, although they noted that recent higher-than-expected readings on inflation, and the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated,” read the minutes.

“Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could.”

The FOMC had voted to lower the benchmark borrowing rate to a target range of 4.25%-4.5% at the meeting.

Despite the rate cut, officials reduced their forecast for 2025 interest rate reductions from four to two, indicating that monetary easing would proceed at a slower pace.

FOMC: ‘upside risks to the inflation outlook had increased’

Trump has announced stringent tariffs on China, Mexico, and Canada as well as other US trading partners ever since his victory in November.

Many experts have warned in their commentary of a surge in inflation followed by a veritable decline in US growth going into 2026 if the tariffs and other policies of mass deportations are implemented.

“Almost all participants judged that upside risks to the inflation outlook had increased,” the minutes said.

“As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.“

This concern was driven by stronger-than-expected inflation data and the potential effects of changes in trade and immigration policy.

Core inflation stood at 2.8% in November, while the broader measure, including food and energy, was at 2.4%.

The Fed targets a 2% inflation rate but does not expect stabilization at that level until 2027.

FOMC to take time to assess evolving outlook for economic activity

Minutes indicated that the pace of cuts ahead indeed is likely to be slower.

Fed officials agreed that the policy rate is nearing a neutral stance, where it neither stimulates nor restricts the economy.

This proximity to neutrality underscores the need for a more cautious approach moving forward.

“A substantial majority of participants observed that, at the current juncture, with its policy stance still meaningfully restrictive, the Committee was well positioned to take time to assess the evolving outlook for economic activity and inflation, including the economy’s responses to the Committee’s earlier policy actions,” the minute said.

The decision to slow the pace of rate cuts aligns with the Fed’s data-dependent strategy.

Officials emphasized that future policy moves would hinge on incoming economic data rather than a predetermined schedule.

Chair Jerome Powell likened the current approach to “driving on a foggy night,” advocating for prudence amid the complex landscape.

Strong economy tempers urgency

Despite inflation concerns, several economic indicators remain robust.

Consumer spending has maintained a solid pace, the labor market remains stable, and gross domestic product (GDP) has been growing above trend levels through 2024.

These factors support the Fed’s decision to proceed cautiously while maintaining flexibility to respond to changing conditions.

However, officials acknowledged that the risks to inflation remain skewed to the upside in the near term.

While the committee anticipates inflation will gradually decline, the timeline for achieving the target level of 2% has been pushed back, reflecting persistent challenges.

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Reliance’s share price has corrected by almost 22% from its 52-week high, and with the company set for a recovery phase, the stock has become extremely attractive in terms of valuation. 

India’s largest company by market capitalisation has seen a $50 billion reduction in market capitalisation since September 2024, driven by a 13% decline in EPS and a 10% drop in EBITDA consensus estimates.

RIL’s current valuation is at its lowest since the market turbulence caused by the COVID-19 pandemic in March 2020. 

Thus, analysts are of the consensus that valuations, currently at a three-year low, present an attractive risk-reward proposition.

“Reliance stands to be a very interesting bet here. There has been good correction here…valuations have become very attractive out here and all businesses have been doing fine. So, I do not see any reason why Reliance should be here and we remain quite optimistic on it,” Varun Saboo, head of equities at Anand Rathi told ET NOW

Reliance share price targets

Global brokerage Morgan Stanley on Thursday set a target price of Rs 1,662- an upside of 31% from current levels- for the stock while maintaining its overweight rating. 

Morgan Stanley said that refining, a significant driver of RIL’s free cash flow (FCF) generation, is poised for growth due to increased global capacity. 

This expansion is expected to capture a substantial portion of global demand growth in 2025, with further tightening of the market projected through 2027.

Morgan Stanley also anticipates improved profitability in RIL’s retail segment in FY26. 

This improvement is expected to be driven by the rationalization of the company’s store footprint, which has seen a reduction of approximately 3.6 million square feet over the past two quarters.

Brokerage Bernstein on Wednesday also highlighted that telecom and retail will drive Reliance’s earnings growth and the company is set for its recovery phase. 

Bernstein rated the stock ‘outperform’ with a target price of Rs 1,520, which is an upside potential of 22.5%.

Jefferies rated the stock a “Buy” with a target price of Rs 1,690- an upside potential of 36%

Reliance: earnings forecast and valuation

According to Bernstein, Jio’s Average Revenue Per User (ARPU) is anticipated to grow by 12% in the near term, even without tariff hikes, supported by subscriber growth of 4-5%. 

The Retail segment is projected to deliver double-digit EBITDA growth, providing further strength to Reliance’s performance. In the refining business, Gross Refining Margins (GRMs) are expected to improve after declining to $9 per barrel in FY24.

The brokerage anticipates a free cash flow (FCF) boost from FY25-27, supported by a steady-state EBITDA of approximately $22 billion.

Bernstein forecasts an approximate 20% CAGR in EPS growth through FY26.

Key growth drivers include improving FCF as the capital expenditure cycle winds down, a retail segment rebound, and potential spin-offs.

However, consolidated “Others” revenue projections for FY25-26 have been trimmed by 15-20%.

Jefferies anticipates a 14% growth in Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) for RIL in FY26, driven by contributions from all business segments. 

Bernstein said valuations remain appealing, with RIL currently trading at 10.1x 1-year forward EV/EBITDA—a 17% discount to its three-year average. 

Jefferies views the current low valuation as a strong opportunity for investors, highlighting RIL’s potential for robust growth across its diversified operations.

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Asian stock markets traded mostly lower on Thursday, taking mixed cues from Wall Street amid persistent uncertainty over interest rates.

The sentiment was influenced by US jobs data, which provided a mixed picture of the labour market, and Federal Reserve meeting minutes indicating a cautious stance on future monetary policy decisions.

Japan’s Nikkei extends decline

In Japan, the Nikkei 225 declined 1% to 39,547.53, with losses driven by technology, exporter, and heavyweight stocks.

Among the notable movers, SoftBank Group fell nearly 1%, Toyota dropped 2%, and technology companies such as Advantest and Tokyo Electron lost close to 2% each.

The broader Topix index slid by 0.59%, with growth shares dropping 0.68%, compared to a 0.51% decline in value shares.

China’s market slips, Hang Seng rebounds

China’s Shanghai Composite and Shanghai Shenzhen CSI 300 indices both were flat on Thursday, reflecting subdued investor sentiment.

Inflation data for December showed the consumer price index was flat, while producer price inflation shrank for the 27th consecutive month.

Weak consumer sentiment and deflationary pressures continue to weigh on the Chinese economy despite Beijing’s aggressive stimulus measures.

Hong Kong’s Hang Seng Index edged slightly higher, supported by gains in select technology stocks.

Tencent rebounded 2%, ending a six-day losing streak, while Xiaomi surged 3.9%. Other technology names saw mixed performances, with Alibaba rising 0.4%, Meituan falling 1.5%, and JD Group slipping 0.6%.

Investors remain focused on potential fiscal measures from Beijing to spur consumer spending, which has been hampered by prolonged weakness in the property market. Across the region, concerns over global interest rates and slowing growth are likely to keep markets volatile in the near term.

Other regional markets

The Australian market ended a five-session winning streak, with the S&P/ASX 200 falling 0.50% to 8,307.80 and the broader All Ordinaries index down 0.49% to 8,557.10.

Losses were broad-based, led by the technology and financial sectors, while gold miners were among the few sectors to see gains.

The KOSPI index has shown positive movement, currently trading at 2533.06, up by 12.01 points (0.49%) from the previous day.

After an initial drop to 2515.82 in early trading, it fluctuated before climbing to 2532.89.

Foreign investors were active in the securities market, with a net purchase of 354.3 billion won, while institutions and individuals sold 300.8 billion won and 85.8 billion won, respectively.

Wall Street mixed on Wednesday

Stocks experienced a lack of direction on Wednesday after the sharp pullback seen on Tuesday, with the major averages bouncing back and forth across the unchanged line before closing narrowly mixed.

The Nasdaq dipped slightly by 10.80 points, or 0.1%, to 19,478.87. In contrast, the Dow gained 106.84 points, or 0.3%, to 42,635.20, and the S&P 500 edged up by 9.22 points, or 0.2%, to 5,918.25.

The mixed trading session was driven by uncertainty surrounding the outlook for interest rates, following the release of mixed US jobs data.

On one hand, the ADP report showed private sector job growth slowed more than expected in December, with a rise of only 122,000 jobs versus an anticipated 140,000.

On the other hand, the Labor Department’s report revealed that initial jobless claims unexpectedly fell to their lowest level in almost eleven months, dropping to 201,000 from the prior week’s 211,000.

The Labor Department’s more closely watched monthly jobs report is scheduled for release on Friday, which could provide further insights into the labor market’s strength and influence market sentiment.

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UK retailers are bracing for a significant cost increase in 2025, estimated at £7bn, due to higher employer national insurance contributions, the rise in the national living wage, and new packaging levies introduced in the government’s recent budget.

The British Retail Consortium (BRC) and industry leaders have estimated an average 4.2% rise in food prices in the latter half of the year, while non-food items are likely to see price rise in line with inflation at 2.6%.

Helen Dickinson, the chief executive of the BRC said,

As retailers battle the £7bn of increased costs in 2025 from the budget, including higher employer national insurance, national living wage, and new packaging levies, there is little hope of prices going anywhere but up.

“The government can still take steps to mitigate these price pressures, and it must ensure that its proposed reforms to business rates do not result in any stores paying more in rates than they do already,” she added.

The rising costs stem from fiscal measures announced in Rachel Reeves’s October budget, which include hikes in national insurance and a significant increase in the national living wage.

Additionally, new packaging levies will add further expenses.

Next raises prices, Tesco and M&S refrain

Fashion and homeware retailer Next has announced a 1% price increase for 2025, citing a £67m rise in wage costs.

The company is among the first to signal price adjustments to offset higher operating expenses resulting from the government’s fiscal policies.

M&S is facing an extra £120 million ($148 million) wage and tax bill. Chief Executive Officer Stuart Machin has previously vowed to absorb the costs, saying its supermarket division had no plans to raise prices.

The retailer said Thursday that the outlook for economic growth, inflation, and interest rates is still uncertain and it faces higher costs, but it will make further progress with its turnaround plan this year.

As the UK’s biggest private-sector employer, Tesco is expected to face the largest bill from the payroll tax increase, though it has said it will offset as much of the budget’s impact as it can through cost savings and automation.

Despite this, temporary price reductions during the holiday season provided some respite for consumers.

The BRC-NielsenIQ shop price index reported a 1% fall in prices during December, driven by Black Friday discounts.

However, these short-term cuts masked the broader inflationary trend.

Inflationary pressures persist as consumer costs climb

While December brought some relief, with lower inflation compared to the previous year, rising costs for essentials like food and skincare products pushed household spending on festive groceries to record highs.

Kantar’s data showed food price inflation reaching 3.7% in December, the highest since March.

Supermarkets, including Tesco, Sainsbury’s, and Lidl, reported strong sales during the holiday season but are expected to carefully manage inflationary pressures in 2025.

“Food inflation is going to build in the UK in 2025,” said Clive Black, the head of consumer research at Shore Capital, which like the BRC is forecasting inflation of more than 4% by December.

Despite the increased costs faced by retailers, “the supermarkets will seek to remain shoppers’ champions”, Black said, predicting that the trading environment will remain competitive.

Calls for government action grow louder

With inflation steadily climbing since mid-2024, retailers warn of its long-term impact on consumer spending.

Mike Watkins, head of retailer and business insight at NielsenIQ, noted that “higher household costs are unlikely to dissipate anytime soon,” urging retailers to navigate these challenges while maintaining competitive pricing.

The BRC and industry leaders are calling on ministers to take decisive steps to alleviate tax burdens and reform business rates to ensure sustainable operations for UK retailers and protect consumers from further price hikes.

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