China’s Producer Prices Dip for 16th Straight Month

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Written By Marcus Reynolds

Continued Decline in Producer and Consumer Prices

China’s economic landscape is marked by an enduring deflationary period, with the producer price index (PPI) recording a 2.5% year-on-year decrease in January, indicating a 16-month streak of declines.

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This reduction in PPI, although slightly better than the anticipated 2.6% fall, follows a 2.7% decrease in December. Concurrently, the consumer price index (CPI) experienced a significant drop of 0.8% on an annual basis in January, marking the most substantial decline since 2009 and surpassing the forecasted 0.5% decrease.

Despite this annual decrease, CPI saw a modest month-on-month increase of 0.3% in January, falling short of the expected 0.4% growth.

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Analysis by Industry Experts

Economic analysts, like Hao Hong from GROW Investment Group, acknowledge that the deflationary figures align with ongoing upstream pressures that have persisted for over a year, now affecting downstream sectors.

A notable impact is observed in pork prices, which plunged by 17.3% in January year-on-year, primarily due to an oversupply issue following aggressive efforts to replenish stock after the swine flu crisis. This oversupply has contributed to a 5.9% reduction in overall food prices in the same period.

Core Inflation Trends

Excluding volatile components such as energy and food, core CPI witnessed a modest increase of 0.4% year-on-year in January. This core inflation metric, reflecting underlying price movements, also saw a 0.3% rise on a month-to-month basis from December to January.

Influence of Seasonal Factors

The National Bureau of Statistics highlighted the impact of seasonal variations, particularly the Spring Festival’s timing, on January’s inflation figures. The festival’s occurrence in January the previous year contributed to a high base effect, influencing the latest inflation data.

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Deflation Concerns and Economic Recovery Challenges

The recent inflation data underscores concerns about China’s proximity to deflation, complicating efforts to rejuvenate the world’s second-largest economy.

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The tepid price environment underscores the challenges faced by China’s leadership in steering a “tortuous” path toward economic revival, especially after lifting stringent zero-Covid restrictions late in 2022.

Global Context and Domestic Challenges

China’s deflationary scenario starkly contrasts with the global trend of high inflation faced by most major economies.

Domestic factors such as intense market competition, a weakening property market, and regulatory measures on developers’ debt reliance further dampen consumer confidence and economic growth prospects.

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