China CPI Drops Most Since Financial Crisis... Deflation 'Dark Clouds'

China's prices have fallen at the largest rate since the global financial crisis, raising concerns about deflation (a decline in prices amid economic recession). Due to slow economic recovery and recessionary pressures, China is moving against the global inflation trend.

On the 8th, China's National Bureau of Statistics announced that the Consumer Price Index (CPI) in January this year fell by 0.8% compared to the previous year. This not only missed the previous month's figure (-0.3%) and the forecast (-0.5%) but also marked the largest decline since 2009. China's CPI has recorded negative growth for four consecutive months since last October (-0.2%).

[Image source=Reuters Yonhap News]

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Food prices led the decline, dropping 5.9% year-on-year, while non-food prices rose by 0.4%. Consumer goods prices fell by 1.7%, and service prices increased by 0.5%. By item, prices of food, tobacco, and alcohol fell by 3.6%, fresh vegetables and meat prices dropped by 12.7% and 11.6% respectively. In particular, pork prices fell by 17.3%, fresh fruit and eggs decreased by 9.1% and 6.4% respectively. Seafood prices declined by 3.4%.

The Producer Price Index (PPI) released on the same day also fell by 2.5% year-on-year. This marked 16 consecutive months of negative growth, but slightly exceeded the forecast (-2.6%) and the previous month's figure (-2.7%).

Earlier, the National Bureau of Statistics pointed to the decline in international raw material prices and seasonal factors such as weather as the reasons behind the price drops in sectors like food and energy. However, it assessed that the risk of deflation was not imminent.

Feng Wansheng, Chief Economist at China International Capital Corporation (CICC), a major Chinese securities firm, said, "There is debate over whether the decline in China's CPI signifies deflation." Liao Qun, Director of the China Chief Economist Forum (CCEF), cited the sharp drops in real estate and stock markets and the decline in consumer goods prices as major concerns, emphasizing that China should not underestimate the risk of deflation.

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