China’s producer prices continued their downward trend for the 16th consecutive month in January, while consumer prices experienced their most significant decrease since 2009. The ongoing decline highlights the significant challenge faced by Beijing in revitalizing the country’s economy, which is the second largest in the world. In January, China’s producer price index fell by 2.5% compared to the same period the previous year, a slight improvement from the 2.7% decline in December, as reported by the National Bureau of Statistics. Meanwhile, the consumer price index fell by 0.8% annually, surpassing the median estimate of a 0.5% decline in a Reuters poll. This marks the fourth consecutive decline in consumer prices. On a monthly basis, the consumer price index saw a 0.3% increase from December, slightly lower than the median expectation of 0.4% growth. Hao Hong, chief economist and partner at GROW Investment Group, noted that the market was not entirely surprised by the deflation figures, as the upstream pressures on prices have been persisting for over a year, leading to downstream impacts. He highlighted the significant decline in pork prices, which dropped by 17.3% in January compared to the previous year, attributed to a surplus following efforts to restore the supply of this staple meat in China. Overall, food prices decreased by 5.9% year-on-year. The core consumer price index, which excludes energy and food prices, showed a 0.4% increase in January from the previous year. On a monthly basis, this translated to a 0.3% growth in January from December, according to a separate statement by the National Bureau of Statistics. The report from the NBS mentioned that the inflation data for January was influenced by the high base effect of the Spring Festival or Lunar New Year, which occurred in January last year but falls in February this year. The latest inflation data underscores the persistent concerns about China’s potential descent into deflation. The subdued prices indicate the challenging path of the economic recovery, which Chinese leaders have described as “tortuous” after the country lifted its stringent zero-Covid measures towards the end of 2022. China remains an outlier among major global economies, most of which are grappling with persistently high inflation. Recent official and private surveys of manufacturing activity revealed that increased market competition has limited the pricing power of Chinese companies, resulting in decreased output prices. The Chinese economy has also been heavily impacted by a downturn in the property market, following Beijing’s crackdown on developers’ substantial reliance on debt-driven growth in 2020.
