Economic Overview: CPI and PPI Trends

The global economic landscape continues to experience mixed signals, as outlined in Maybank Research’s latest report. Headline inflation in China fell to a nine-month low of +0.1% in December 2024, averaging +0.2% for the entire year. Core inflation, which excludes food and energy, rose to a five-month high of +0.4%, signaling early recovery signs for consumer demand.

Producer Price Index (PPI) deflation persisted for the 27th consecutive month, albeit tapering to -2.3% in December from -2.5% in November. Upstream segments like mining, raw materials, and producer goods remain under pressure, awaiting stabilization through property market recovery and infrastructure investments. Policy measures, including expanded trade-in programs and 15 new infrastructure projects in Western provinces, aim to stimulate demand across sectors.

Monetary Policy Outlook

In 2025, Maybank Research forecasts headline and core inflation to rise to approximately +1%, driven by stabilization in consumer goods prices. While the People’s Bank of China (PBOC) faces limited room for policy rate cuts due to thin bank interest margins, a 100 basis point (bps) reduction in the Reserve Requirement Ratio (RRR) is expected by the end of 2025. Additionally, the 1-Year Loan Prime Rate (LPR) is anticipated to fall by 25 bps to 2.85%, aligning with gradual inflation recovery.

Food and Consumer Goods Price Trends

December witnessed a decline in food prices, which fell by -0.5% year-on-year, following three months of significant weather-induced spikes in vegetable prices (+20% from August to October). Non-food CPI inflation edged upward to +0.2%, while consumer services costs increased marginally by +0.1% month-on-month, offsetting a slight decline in goods prices. Core inflation recovery on a sequential basis (+0.2%) reflects improved consumer sentiment.

Infrastructure and Trade-In Programs to Bolster Recovery

The Ministry of Finance (MOF) has allocated RMB 81 billion for consumer trade-in programs in 2025, focused on smartphones and tablets. This initiative builds on the RMB 150 billion allocated in 2024, aiming to sustain retail demand. Infrastructure projects in Western provinces are expected to absorb excess industrial inventories, supporting a gradual recovery in upstream producer segments. PPI deflation is projected to narrow further to -1.3% in 2025.

Key Analyst Insights and Regional Collaboration

Maybank Research’s team of seasoned analysts, including Erica Tay and Chua Hak Bin, contribute diverse expertise to this report. The collaboration spans regional markets, providing insights into macroeconomic trends and sector-specific developments. Their analysis highlights the interplay between consumer demand, inflationary trends, and monetary policy interventions.

Listed Companies Analysis

While this specific report centers on macroeconomic indicators and policy assessments, Maybank Research is renowned for its in-depth analysis of listed companies across various sectors. Analysts provide actionable recommendations based on fundamental and technical valuations. The rating system employed categorizes stocks as BUY (expected return above 10% within 12 months), HOLD (return between 0% and 10%), or SELL (return below 0%).

Maybank’s coverage universe spans industries such as consumer goods, banking, technology, real estate, and energy, offering targeted strategies for institutional and retail investors.

Conclusion

Maybank Research’s January 9, 2025, report offers a comprehensive view of China’s economic trajectory, focusing on CPI, PPI, and monetary policy adjustments. The analysis underscores the importance of targeted stimulus measures and infrastructure investments in driving recovery. With inflation expected to stabilize and demand poised to recover, the report provides valuable insights for investors navigating a complex economic environment.