China’s consumer inflation slows further in December, stoking deflation worries

China’s consumer prices in December rose 0.1% year over year, in line with expectationsdata from the Office for National Statistics showed on Thursday, but the slower increase from the previous month fueled deflation concerns.

Analysts polled by Reuters had expected the consumer price index to fall to 0.1% in December from 0.2% in November on an annual basis.

China’s producer price inflation fell by 2.3% year-on-year in December, falling for the 27th month. The reading was slightly better than Reuters estimates of a 2.4% decline.

Consumer inflation near zero indicates that China continues to struggle with weak domestic demand that has raised specter deflation.

Consumption has failed to pick up despite a series of stimulus measures introduced by Beijing since then last Septemberwhich include reductions in interest rates, support for stock and real estate markets and increased bank lending.

As of Wednesday, China expanded its consumer trade scheme aimed at boosting consumption equipment upgrades and subsidies.

Some metrics, however, signal that the Chinese economy could see some recovery. The country factory activity was expanding for the last three months, although the pace of expansion slowed down in December.

“Although China’s economy has shown some signs of recovery after the policy change in September, it continues to face significant challenges,” said Carlos Casanova, a senior economist at private bank Union Bancaire Privée, citing the winds opposites of the country’s property sector and trade tensions with the United States.

Louise Loo, chief economist at Oxford Economics, expects China’s path to reflation to still fall short of most estimates given the persistent weakness in consumer spending appetite.

of China onshore yuan on Wednesday it hit a 16-month low of 7.3316 against the dollar, as Treasury yields rose and the dollar strengthened.