China’s Deflation Woes Grow as Prices Fall at Fastest Pace in 15 Years

February 8, 2024

China’s consumer prices fell at the fastest pace in 15 years in January, as the world’s second-largest economy continues to stumble.

 China’s consumer price index (CPI) tumbled last month, falling 0.8% from a year earlier. That marks the fourth consecutive month of declines and is the steepest annual drop since September 2009, when the global economy was still dealing with the fallout of the 2008 financial crisis.

Food prices were the biggest drag on the topline CPI figure, having fallen 5.9% from a year earlier, with pork prices down 17%, fresh vegetable prices falling 12.7% and fruit pricing declining 9.1%. Some analysts have pointed out that the data may be skewed because of where Lunar New Year’s is falling this year. The holiday, which is a major source of consumer spending, was in January last year but falls in February this year. That means that this January’s figures are being compared to last year’s holiday period, and figures could bounce back once next month’s data takes the holiday season into account.

Still, there is a larger trend at play. China’s economy first started seeing deflation last summer, and prices have fallen at a faster pace since then. Its factories have also cut prices, with the latest producer price index pointing to a 2.5% drop in annual prices in January, continuing a run that saw producer prices fall every single month last year.

China’s economy has been struggling to recover from the Covid-19 pandemic after restrictions were lifted in late 2022. Growth is expected to slow from last year’s already underwhelming pace, a protracted real estate crunch continues to hamper domestic consumer spending, with the beleaguered development titan Evergrande being forced into liquidation last month, and Beijing replaced the country’s top securities regulator this week after a historic stock market rout.

Many worry that the nation may be on the precipice of a deflationary spiral, which can be very difficult to reverse. Falling prices diminish corporate profits and consumers begin to hold off on spending in anticipation that prices will continue to fall. In turn, companies cut prices further and put off hiring and investments, further depressing spending in a brutal cycle.


Read all Blog posts