Meanwhile, China’s producer price index (PPI) – which measures the cost of goods at the factory gate – declined by 2.5 per cent year on year last month, compared to a fall of 2.7 per cent in December and marking the 16th straight month of decline. Wind had predicted a 2.5 per cent fall.
Unlike many parts of the world that have experienced inflation in the aftermath of the coronavirus pandemic, China has seen growing risks of deflation.
Food and energy prices have an estimated combined 43 per cent weighting in the CPI basket, which rose by only 0.2 per cent in 2023, compared with a 2 per cent increase in 2022.
However, price growth in the service sectors, which carry around a combined estimated 30 per cent weighting, have been more resilient.
China’s statistics bureau previously acknowledged declining prices in sectors including food and energy, attributing the fall to lower prices in international commodity markets and seasonal factors such as the weather, although it does not see the risk of deflation as imminent.
“Whether China’s current contraction in year-on-year CPI growth rate means that the economy is falling into deflation is a controversial issue,” said Peng Wansheng, chief economist at the China International Capital Corporation said on Tuesday, according to comments published by the China Chief Economist Forum, a Shanghai-based think tank.
Looking at the perspective of the domestic environment, the impact of deflation on economic growth should not be underestimated
Liao Qun, a director of the China Chief Economist Forum, said China should not underestimate the impact of deflation risks, citing plunging prices in property and stock markets, as well as declining prices in consumer goods over the last year as a key concern.
“One must know that after years of rapid economic growth and massive monetary expansion, many consumers and companies in China accumulated a large amount of assets,” Liao also said on Tuesday, according to the Shanghai-based think tank.
“What determines how much they will consume or invest is not only the amount of income from these assets, but also the value of their total assets.
“Looking at the perspective of the domestic environment, the impact of deflation on economic growth should not be underestimated.”
More to follow …
