Mon, Mar 10, 2014 - Page 15 News List

China’s dropping inflation rate fuels deflation warnings


China’s inflation rate dropped to 2 percent year-on-year last month, down from 2.5 percent in January, the government said yesterday, prompting economists to warn that the risk of deflation was rising.

The consumer price index (CPI) figure announced by China’s National Bureau of Statistics (NBS) matched the median forecast in a poll of 13 economists by Dow Jones Newswires.

The producer price index (PPI), which measures costs for goods at the factory gate, declined by 2 percent last month, accelerating from January’s 1.6 percent fall, the NBS said.

Economists from ANZ bank wrote in an analysis that the PPI had been negative for two years and “the risk of deflation is rising in the near term.”

The inflation statistics came a day after Customs said that China recorded an unexpected trade deficit of US$22.98 billion for last month.

“Yesterday’s trade figures also reinforced the view that China’s growth momentum continues to slow down,” the ANZ economists said, adding that consumption over the Lunar New Year holiday period had been soft, “partly due to fiscal austerity and anti-corruption efforts by the Chinese authorities.”

“GDP growth in the first half of 2014 will likely be below 7.5 percent, which could trigger further policy easing over the foreseeable future,” they said.

Food prices — which often increase during the Lunar New Year, which fell mostly during last month this year — went up by only 2.7 percent, the NBS said, although the figure included wide variations, with pork prices falling 8.7 percent, while fresh fruit went up 19.7 percent.

China’s CPI, a main gauge of inflation, rose by 2.6 percent last year, unchanged from 2012 and well below the 3.5 percent target set by the government in the world’s second-biggest economy.

Chinese Premier Li Keqiang (李克強) set a target of “about 7.5 percent” for growth this year in a speech to China’s National People’s Congress last week, while leaving an unchanged inflation goal for this year.

Inflation in China has slowed markedly since 2011, when annual CPI spiked to 5.4 percent, and maintaining growth in the face of domestic and overseas economic woes has since become a higher priority for Beijing.

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