China's consumer prices plummet at their fastest rate since 2009 amid economic deflation fears

 As deflation fears loom over the economy, China's consumer prices plunge at their steepest rate since 2009.

In summary, the January CPI decreased 0.8% year over year compared to December's -0.3% decline.

PPI fell 2.5% year over year in January compared to a decline of -2.7% in December.

Beijing, February 8, Reuters The world's second-biggest economy, China, continues to face deflationary threats as it fights to recover. In January, producer prices fell as well, marking the largest decline in consumer prices in over 14 years.

The National Bureau of Statistics (NBS) released statistics on Thursday that showed the consumer price index (CPI) decreased 0.8% in January compared to the same month last year, following a 0.3% decline in December. After increasing by 0.1% in the prior month, the CPI increased by 0.3% this month.

According to Reuters polled economists, there would be a 0.4% monthly rise and a 0.5% annual decline. January saw the largest annual CPI drop since September 2009.

The second-biggest economy in the world has had difficulty picking up steam since the COVID restrictions ended in late 2022. This year began at a lower point, with an official poll revealing a decline in industrial activity in January due to low confidence stemming from a fall in real estate, the risk of local government debt, and sluggish global demand.

China is still under deflationary pressure, according to the CPI figures, according to Zhiwei Zhang, chief economist at Pinpoint Asset Management.

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

Since the beginning of the year, China has struggled with declining prices, which has forced officials to lower interest rates to promote growth while many developed nations were preoccupied with bringing down persistently high inflation.

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Although the economy grew by 5.2% in 2023, exceeding the stated forecast of roughly 5%, investors had not anticipated how shakily the recovery would hold up. Analysts following policy matters anticipate Beijing to stick to its 5% growth objective from the previous year.

Although observers say officials still need to do more to boost demand and confidence, China's central bank sent a powerful signal of support for the country's weak economy in late January when it announced the largest reduction in bank reserves in two years.

Core inflation, which excludes erratic food and energy costs, increased by 0.4% from the previous year, compared with a 0.6% increase in December.

The stated objective of roughly 3% was missed by the CPI's 0.2% increase last year, meaning that actual inflation has now undershot annual targets for 12 years in a row.

In a research report released last week, Citigroup economists stated that they anticipate little deflation in 2024 and 1.2% annual CPI inflation.

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

Following a 2.7% decline the month before, the producer pricing index (PPI) fell 2.5% from a year ago in January, below the 2.6% decline predicted in the Reuters poll.

Factory-gate prices had decreased by 0.2% from the previous month, following a 0.3% decline in December.

Long-term industrial deflation is putting smaller Chinese exporters in a pricing war with their diminishing enterprises, putting their future in jeopardy.