China's consumer prices fall the most in 14 years

China's consumer price index (CPI) fell the most since 2009 while producer prices also fell, adding to deflationary pressures.

China's consumer price index fell 0.8% year-on-year in January, data from the National Bureau of Statistics (NBS) showed, after falling 0.3% in December. It was the biggest decline since September 2009, beating economists ' forecasts of a 0.5% fall.

Core inflation, which strips out food and energy prices, rose just 0.4% year-on-year, slowing from December's 0.6%. Dong Lijuan, a senior statistician at the NBS, noted that the decline was partly due to a high base, as January 2023 was the Lunar New Year month and the post-Covid-19 reopening period boosted demand.

A vegetable stall at an outdoor food market in Beijing, China on January 12. Photo: Reuters — A vegetable stall at an outdoor food market in Beijing, China on January 12. Photo: *Reuters*

However, the Lunar New Year in 2012 and 2022 also fell in January in the past 14 years. Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the CPI data still showed that China faced persistent deflationary pressures. "China needs to act quickly and decisively to avoid the risk of deflationary expectations taking root in consumers' minds," he said.

Deflation is defined as a sustained and large-scale fall in the prices of goods and services over a period of time. This is not a positive thing for the economy. Because when consumers and businesses delay spending in anticipation of further price falls, economic activity is stifled.

The world's second-largest economy has been struggling with slowing prices since early last year, forcing policymakers to cut interest rates to boost growth. Beijing has set a 2024 growth target of around 5%.

Late last month, China’s central bank announced the deepest cut in banks’ reserve requirements in two years, sending a strong signal of support for the economy. But analysts say more action is needed to boost confidence and demand.

Citigroup forecasts China's CPI to rise 1.2% in 2024 compared to 2023. Last year, the country's inflation rose just 0.2%, below the 3% target. "Cyclical factors in CPI may change this year, while the strength of inflation will depend on the extent to which consumer confidence recovers," Citigroup said.

Along with the consumer price index, China’s producer price index (PPI) fell 2.5% year-on-year in January and 2.7% from December 2023. Factory prices fell 0.2% month-on-month. Prolonged factory deflation is threatening the operations of China’s small exporters, who are caught in a price war as they struggle to survive.

Phien An ( according to Reuters, WSJ )

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