Quickest decline in Chinese consumer prices in 14 years

Data released on Thursday revealed that Chinese consumer prices experienced their most significant decline in over 14 years in January, underscoring the challenges faced by the country’s leaders in stimulating purchasing activity in the world’s second-largest economy.

The 0.8 percent decrease in the consumer price index (CPI), reported by the National Bureau of Statistics (NBS), marked the fourth consecutive month of deflation and surpassed expectations, as it was larger than the 0.5 percent decline forecasted in a Bloomberg News survey. This reading represents the worst performance since the global financial crisis in the second half of 2009.

Furthermore, a 2.5 percent drop in the producer price index (PPI), which measures the cost of goods leaving factories, indicated ongoing weakness in the economy.

The NBS attributed these figures to the “high base of the Spring Festival holiday in the same period last year.” China first entered into deflation in July 2021 and has experienced continuous decline in prices since then, except for a brief rebound in August.

Food prices, which saw a year-on-year decrease of 5.9 percent, were identified as the primary driver of the inflationary drag, reaching the lowest level on record, according to Lynn Song, Chief Economist for Greater China at ING bank.

While these numbers suggest that goods were cheaper, they pose significant risks to the economy. Consumers may delay purchases in anticipation of further price reductions, leading to decreased demand. This, in turn, can compel companies to reduce production, halt hiring, or even lay off workers, potentially impacting profitability despite unchanged costs.

Despite ongoing challenges, China has implemented various measures aimed at stimulating the economy, yet analysts argue that a more robust stimulus plan may be necessary to restore confidence and counter deflationary pressures. Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, emphasized the urgency of swift and aggressive actions to prevent entrenched deflationary expectations among consumers.

China’s deflationary trend stands in contrast to the global scenario, where inflation remains a persistent concern, prompting central banks worldwide to raise interest rates in response.

Business News: Quickest decline in Chinese consumer prices in 14 years