China consumer prices drop at fastest pace since 2009 as deflation risks stalk economy

BEIJING – China’s consumer prices suffered their steepest fall in more than 14 years in January while producer prices also dropped, underscoring the persistent deflationary risks facing the world’s second-biggest economy as it struggles to recover.

The consumer price index (CPI) fell 0.8 per cent in January from a year earlier, after a 0.3 per cent drop in December, data from the National Bureau of Statistics (NBS) showed on Feb 8. The CPI rose 0.3 per cent month on month from a 0.1 per cent uptick the previous month.

Economists polled by Reuters had forecast a 0.5 per cent fall year on year and a 0.4 per cent gain month on month. The annual CPI decline in January was the biggest since September 2009.

The world’s second-biggest economy has struggled to regain momentum since the end of Covid-19 curbs in late 2022. It started this year on a lower ebb, with an official survey showing factory activity contracting in January as confidence remains weak amid a property downturn, local government debt risks and soft global demand.

“The CPI data today shows China faces persistent deflationary pressure,” said Pinpoint Asset Management’s chief economist Zhiwei Zhang.

“China needs to take actions quickly and aggressively to avoid the risk of deflationary expectation to be entrenched among consumers.”

China has been grappling with slowing prices since early last year, forcing policymakers to cut interest rates to spur growth even as many developed economies were focused on taming stubbornly high inflation.

The economy grew 5.2 per cent in 2023, meeting the official target of around five per cent, but the recovery has been shakier than investors had expected. Policy insiders expect Beijing to maintain a growth target similar to last year of around five per cent.

China’s central bank in late January announced the deepest cut to bank reserves in two years, sending a strong signal of support for the fragile economy, but analysts say policymakers need to do more to lift confidence and demand.

Core inflation, which strips out volatile food and energy prices, gained 0.4 per cent from a year earlier, down from a 0.6 per cent gain in December.

CPI rose 0.2 per cent last year, missing the official target of around three per cent, marking the actual inflation undershot annual targets for the 12 straight year.

Citigroup economists said in a research note last week that they expect mild reflation in 2024, and forecast annual CPI inflation at 1.2 per cent year-on-year.

“The cyclical drivers for CPI could turn around in 2024, while the strength of its reflation would hinge on the return of consumer confidence.”

The producer price index (PPI) slid 2.5 per cent from a year earlier in January after a 2.7 per cent fall the previous month, compared with a 2.6 per cent slide forecast in the Reuters poll.

Factory-gate prices were down 0.2 per cent from a month earlier, after falling 0.3 per cent in December.

Prolonged factory deflation is threatening the survival of smaller Chinese exporters who are locked in relentless price wars for shrinking business.

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