China falls deeper into deflation, with consumer prices suffering biggest fall since 2009

China falls deeper into deflation, with consumer prices suffering biggest fall since 2009
  • PublishedFebruary 8, 2024

China’s consumer prices have slid deeper into deflationary territory, suffering their biggest drop since the height of the global financial crisis in 2009. But analysts say the sharp fall was largely due to a seasonal issue and the downturn may have already bottomed out.

The country’s Consumer Price Index (CPI), a gauge of changes in the prices of goods and services purchased for consumption by urban households, dropped by 0.8% in January from a year ago, according to the National Bureau of Statistics (NBS) on Thursday.

It was the steepest fall for the index since September 2009 and marks a fourth straight month of decline.

The NBS, as well as some economists, attributed the sharp drop partly to the high base of comparison last year, when prices were particularly high due to holiday demand.

“[The] Lunar New Year falls in February this year compared with the end of January last year, causing distortions to the base,” HSBC economists said in a research note on Thursday.

In 2023, the Lunar New Year was celebrated from January 21 to January 27 in mainland China, which resulted in a 2.1% increase in the CPI for that month.

The economists said weak consumer demand in January 2024 also weighed on prices.

Food prices in particular were a major drag on the index last month. The price of pork, a staple in the Chinese diet, plunged by 17.3% from a year ago, marking the biggest drop among all consumption items. Vegetable prices slid nearly 12%.

Lynn Song, chief economist for Greater China at ING Economics, says consumer prices are likely to rise from February onwards.

“The base effects makes January’s data look worse than they are. Sequential data paints a more upbeat picture,” Song said.

Compared to December, the CPI actually rose by 0.3% in January, up for a second month in a row.

The drag from pork prices will also fade in the coming months, as holiday demand could drive up the meat prices, Song said. China is about to celebrate the Lunar New Year starting on Saturday.

“Considering the more favorable base effects for February’s data, we see a high likelihood that January’s data could mark the low point for (year-on-year) inflation in the current cycle.”


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