China’s consumer prices fall at fastest rate in 15 years as economy battles deflation – business live
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Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand.
China’s consumer price index fell 0.8% year-on-year in January, data released this morning showed. It’s the fourth straight month of declines, and the biggest contraction since 2009 after the financial crisis.
The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January.
Pork prices dropped by 17%, and were a major drag on inflation, while fresh vegetables were 12.7% cheaper than a year ago and fruit cost 9.1% less.
China’s factories continued to cut their prices last month, too. The producer price index (PPI) slid 2.5% from a year earlier in January after a 2.7% fall the previous month.
The drop in annual inflation puts more pressure on Beijing policymakers to take fresh steps to stimulate the economy.
China’s stock markets have rallied a little today.
Kyle Rodda, senior financial market analyst at capital.com, says the markets have “ostensibly reacted favourably” to disappointing Chinese price data.
While a very concerning sign for China’s economy, which could be becoming entrenched in a debt and deflation cycle, the markets arguably responded in a positive way to the news.
Perhaps markets see the terribly low number as a potential catalyst for more muscular monetary or fiscal stimulus from the central government, which, up until this point, has been moderate in applying countercyclical policy.
China announced this morning that deflation accelerated in January to -0.8% y-o-y, faster than a 0.5% deflation penciled in by analysts and the fastest price drop in over 14 years. In plain English, it means that the Chinese efforts to boost growth and bring inflation back are not working according to the plan.
Money poured into the Chinese system doesn’t circulate in a way to stimulate economy – blame people who lost confidence – and the radical measures that the government has put in place to prop up equity valuations hardly help China’s battered stock markets to get back on their feet.
Today, sentiment in the CPI 300 index is mixed. I was writing yesterday that a deeper than expected deflation number will certainly encourage Chinese authorities to announce more stimulus measures. But measures alone won’t help getting the Chinese markets’ heads above water if investors don’t play along.
Another worry about the Chinese recovery is that because the Chinese dream has been dashed by a $7 trillion selloff in the equity markets, many could be tempted to take their loss and walk away in the slightest recovery. In summary, the road to a sustainable recovery seems far away.
China’s January’s -0.8% annual inflation reading could mark the low point in the current cycle, according to Lynn Song, ING’s chief economist for Greater China.
Song argues that China is not trapped in a “deflationary spiral”, and predicts that pork prices could pick due to demand in this month’s Lunar new year holidays.
Photograph: ING
Song explains:
Sequential data paints a more upbeat picture. In MoM terms, headline CPI rose 0.3%, food CPI rose 0.4%, and non-food CPI rose 0.2%. 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.
Furthermore, China’s pork cycle also indicates that the drag from pork prices will also fade in the coming months. While still a major drag in January’s data, pork price inflation has actually risen for the past two months, and the December 2023 MoM change in the pig stock was the largest decline since March 2022. With expected demand for the Lunar New Year holiday in February, this could return to positive growth in next month’s release.
As such, considering the more favourable base effects for February’s data, we see a high likelihood that January’s data could mark the low point for YoY inflation in the current cycle.
Photograph: ING
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Consumer prices across China are falling at the fastest pace in 15 years, as its economy struggles with weak demand.
China’s consumer price index fell 0.8% year-on-year in January, data released this morning showed. It’s the fourth straight month of declines, and the biggest contraction since 2009 after the financial crisis.
The inflation rate was dragged down by falling food prices, which dropped by 5.9% year-on-year in January.
Pork prices dropped by 17%, and were a major drag on inflation, while fresh vegetables were 12.7% cheaper than a year ago and fruit cost 9.1% less.
China’s factories continued to cut their prices last month, too. The producer price index (PPI) slid 2.5% from a year earlier in January after a 2.7% fall the previous month.
The drop in annual inflation puts more pressure on Beijing policymakers to take fresh steps to stimulate the economy.
China’s stock markets have rallied a little today.
Kyle Rodda, senior financial market analyst at capital.com, says the markets have “ostensibly reacted favourably” to disappointing Chinese price data.
While a very concerning sign for China’s economy, which could be becoming entrenched in a debt and deflation cycle, the markets arguably responded in a positive way to the news.
Perhaps markets see the terribly low number as a potential catalyst for more muscular monetary or fiscal stimulus from the central government, which, up until this point, has been moderate in applying countercyclical policy.
