Lending Association

China’s deflation woes persist

Another month of falling consumer and producer prices in China underscores the country’s weak activity and demand. However, a slight silver lining emerged in the consumer price data.

Data from the National Bureau of Statistics (NBS) revealed that the country’s Consumer Price Index fell by 0.8% in January, marking the fourth consecutive month of headline deflation – the sharpest drop since the Global Financial Crisis in 2009, largely due to a record fall in food prices.

Economists had anticipated a 0.5% decrease after December’s 0.3% drop, but the 5.9% plunge in food prices, particularly in pork (down by 17.3%), hit harder than expected.

On a monthly basis, the CPI rose by 0.3% in January, slightly exceeding December’s 0.1% increase, though falling short of market expectations of a 0.4% rise.

The core CPI, which excludes volatile items like food and energy prices, increased by an annual 0.4% due to December’s 0.3% monthly rise, indicating minimal movement and effectively signaling mild deflation.

China’s producer prices continued their downward trend in January, marking the 16th consecutive monthly decline and emphasizing the weak demand in the manufacturing sector.

The producer price index fell by 2.5% in January compared to the previous year, slightly better than the forecasted 2.6% decline and the 2.7% drop in December.

The NBS attributed January’s inflation data to the high base effect of the Spring Festival or Lunar New Year, which occurred in January the previous year.

Despite efforts to stabilize the stock market, the government’s focus should be on boosting consumer confidence and spending. The persistent property market challenges hinder demand and activity in associated industries, reinforcing the need for government-supported spending and loans to address the issue.

Currently, Chinese companies, especially manufacturers and retailers, lack pricing power, leading to widespread deflationary pressures.

While Chinese stock markets reacted positively to changes in the leadership of the country’s Securities Regulatory Commission, the significance of this change is debatable. Meanwhile, Hong Kong shares remained lower on Thursday afternoon.