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Chinese prices deflate amid wider pressures on the economy

by Tobias Burns - 02/08/24 10:31 AM ET

FILE - American flags are displayed together with Chinese flags on top of a trishaw on Sept. 16, 2018, in Beijing. Over the past four decades, U.S. universities have educated millions of Chinese students, many of whom have stayed in the country and become top researchers and distinguished professors. The number of Chinese students in the United States is down, and U.S.-Chinese research collaboration is shrinking, with academics shying away from potential China projects over fears that seemingly minor missteps could end their careers. (AP Photo/Andy Wong, File) — FILE – American flags are displayed together with Chinese flags on top of a trishaw on Sept. 16, 2018, in Beijing. Over the past four decades, U.S. universities have educated millions of Chinese students, many of whom have stayed in the country and become top researchers and distinguished professors. The number of Chinese students in the United States is down, and U.S.-Chinese research collaboration is shrinking, with academics shying away from potential China projects over fears that seemingly minor missteps could end their careers. (AP Photo/Andy Wong, File)

Consumer prices in China are deflating rapidly as the country’s economy struggles to right itself after pandemic-era disruptions.

China’s consumer price index (CPI) decreased 0.8 percent in January from a year ago, the largest drop since 2009.

Retail deflation has been going on for four months, while wholesale deflation has been going on for 16 months, according to multiple outlets. Food prices fell by 5.9 percent on the month.

Economists caution that while the January numbers were weak, particularly for food, they were likely made worse by the timing of the lunar new year, which is a major celebration in China.

“January consumer price deflation was the worst in over 14 years, but this is distorted. The lunar new year is (literally) a moveable feast — occurring in January 2023, and in February 2024. That distorts food price patterns, exaggerating deflation. Nonetheless, [the] deflation trend is indicative of weak domestic demand,” UBS economist Paul Donovan wrote in a Thursday commentary.

Chinese stocks have been up and down recently, Deutsche Bank analysts noted Thursday.

“There’s been a mixed reaction among Chinese equities ahead of the Lunar New Year holiday, with the Shanghai Comp (0.71 percent) advancing, whereas the CSI 300 (0.02 percent) has been broadly unchanged. Meanwhile, the Hang Seng has seen larger losses, with the index down 1.22 percent,” Deutsche Bank analyst Jim Reid and others wrote Thursday.

The Chinese property market has been under stress. The assets of property developer Evergrande were liquidated at the end of January.

“On 29 January 2024, the company was ordered to be wound up by the High Court,” Evergrande said in a statement last month.

Analysts say that real estate developers are turning to the government for support.

“The Ministry of Housing and Urban-Rural Development (MHURD) convened a meeting Friday with local officials and financial regulators to get financing to qualified developers in need faster,” China watcher Bill Bishop wrote in a commentary at the end of January.

Tags China Global economy