Analysts Surprised as China’s Consumer Prices Decline at Fastest Rate in 15 Years!

Consumer prices in China dropped at the fastest rate in 15 years in January, defying analysts’ expectations and highlighting the challenges faced by policymakers who are trying to revive investor confidence in the world’s second-largest economy.

The figure will likely worsen calls for officials to make more efforts to revive the economy, while the impact of the central bank’s interest rate cuts and measures to increase lending remains minimal.

January, which saw a 0.8% decline in the consumer price index, as disclosed by the National Statistics Office, marks the fourth consecutive month of contraction, while the percentage is higher than the 0.5% anticipated by a survey conducted by “Bloomberg News”.

“The number is the worst since the second half of 2009 during the global financial crisis. The decline in the producer price index, which measures the costs of products when they leave factories, by 2.5 percent indicates continued weakness. China recorded a contraction in July for the first time since 2021.”

In addition to a brief recovery recorded in August, the country is consistently witnessing a decline.

The chief China expert at the bank “ING” in Egypt, Lin Song, said in a memorandum published by the AFP that :

“food prices remained the main factor affecting inflation, as they declined by 5.9 percent from year to year, reaching their lowest level ever.”

She also pointed to the figures that show an increase in costs from month to month. And she stated:

“Although they are far from the higher levels of inflation set by many other economies, these numbers do not indicate that China is stuck in a spiral of contraction.”

The potential for January data to represent the lowest level of inflation in the current cycle is high. While contraction implies that products are cheaper, it poses a threat to the broader economy as consumers usually delay purchasing in the hopes of further reductions.

A decrease in demand can force companies to reduce production, freeze hiring, or lay off employees. They may also be compelled to lower prices of existing inventory, impacting profits even if prices remain the same.

Official revealed a series of measures aimed at boosting the economy, which has not recovered even after the strict measures to control Covid were lifted in late 2022, while analysts warned of the need for a strong stimulus plan to restore confidence.