China consumer prices show quickest drop in 14 years

China consumer prices show quickest drop in 14 years

Chinese consumer prices fell last month at their fastest pace since 2009
Chinese consumer prices fell last month at their fastest pace since 2009.
Photo: Peter PARKS / AFP
Source: AFP

Chinese consumer prices fell in January at their quickest rate in more than 14 years, data showed Thursday, as the country’s leaders struggle to revive buying sentiment in the world’s second-biggest economy.

The reading will likely add to calls for officials to do more to breathe life into the economy, with central bank interest rate cuts and measures to boost lending having little impact so far.

The 0.8 percent drop in the consumer price index, revealed by the National Bureau of Statistics (NBS), marked the fourth straight month of deflation and was much bigger than the 0.5 percent fall forecast in a survey by Bloomberg News.

The reading was the worst since the second half of 2009, during the global financial crisis.

And a 2.5 percent plunge in the producer price index (PPI) — which measures the cost of goods leaving factories — signalled continued weakness.

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The NBS said the figures reflected the “high base of the Spring Festival holiday in the same period last year”.

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China slipped into deflation in July for the first time since 2021 and — apart from a brief rebound in August — have been in constant decline since.

“The primary drag on inflation continued to be food prices, which fell by 5.9 percent year-on-year, the lowest level on record,” Lynn Song, Chief Economist, Greater China, at bank ING, said in a note.

She also pointed to figures showing costs rising month-on-month.

“While a far cry from the above-target inflation levels seen in many other economies, these numbers do not imply China is stuck in a deflationary spiral,” Song said.

“We see a high likelihood that January’s data could mark the low point for (year-on-year) inflation in the current cycle.”

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While deflation suggests goods were cheaper, it poses a threat to the broader economy as consumers tend to postpone purchases, hoping for further reductions.

A lack of demand can then force companies to cut production, freeze hiring or lay off workers, while potentially also having to discount existing stocks — dampening profitability even as costs remain the same.

Officials have unveiled a series of measures aimed at boosting the economy — which has failed to rebound even after strict zero-Covid policies were lifted at the end of 2022 — with analysts warning a “bazooka” stimulus plan was needed to restore confidence.

“China needs to take actions quickly and aggressively to avoid the risk of deflationary expectation to be entrenched among consumers,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said.

China’s sinking prices are in stark contrast with the rest of the world, where inflation remains a persistent bugbear, forcing central banks to ramp up interest rates.

Source: AFP


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