China's January inflation down to 1 per cent; warning signs of deflation
11 Feb 2009
Chinese consumer inflation dropped to a two-and-a-half year low in January to just 1 per cent, according to data issued by the National Bureau of Statistics, indicating the world's third-largest economy is showing signs of weakening with slowdown in export and industrial growth indicating signs of deflation.
China's consumer index (CPI) dropped in January to almost late 2002 numbers and the wholesale price inflation (WPI), a measure of producer prices dropped for the second consecutive month to 3.3 per cent in January to its weakest rate since 2006, from its peak at 10.1 per cent in August, 2008.
China's economic growth is deteriorating amid global recession that is forcing consumers in the US, China and Europe to tighten their belts, which in turn could further push China into a deeper recession.
According to data released by the National Bureau of Statistics (NBS) consumer price inflation, (CPI) in the middle kingdom eased to 1 per cent from previous year, as against 1.2 per cent in December, 2.4 per cent in November and CPI hitting a 12-year high of 8.7 per cent in February.
According to NBS, few commodity prices continued to increase potently, especially food stood up at 4.2 per cent and fresh vegetables prices up 19.6 per cent; but there was relief on pork prices, highest meat consumption in China down by 13.3 per cent in January.
In the first half of 2008, the government's top priority was to control inflation as the key factor - food prices were up caused by shortages. But with the global recession having its impact on China, priorities changed and the government like other governments the world over, came out with its stimulus package to boost its economy in November.
At a conference of central bankers in Kuala Lumpur, Zhou Xiaochuan, Central bank Governor said that we require a comprehensive package to prune the savings rate, including both interest rates and foreign-exchange rate.
"We need to give emphasis to improve internal consumption, especially in rural belts, thereby changing the consumption pattern and maintain economic growth" he added.
China's top lending bank, Industrial and Commercial Bank of China (ICBC), reported an increase in total off-take of new loans in January (See: China's ICBC reports rise in off-take of new loans in January)
China's economy grew by 9 per cent in 2008, a jump of 13 per cent from 2007, pushing Germany to claim the world's third-biggest economy. In last quarter of 2008, the growth fell for the first time in six years to single digit of 6.8 per cent.
China, the only major economy to be growing at double-digit figures over the last three decades, was facing an unprecedented crisis as the powerful growth engine continued to lose steam in the third quarter and the growth rate fell to its lowest level in more than five years. (See: China's growth drops to lowest in five years)
Chinese officials said in November that the global economic crisis had taken a toll on its economy and country was facing the grim prospect of growing unemployment with many company's resorting to massive layoffs. (See: Chinese officials say employment situation 'grim') Several economists are of the opinion that CPI would begin to fall in February.
China suffered deflation in 2002 ending in 2003 and in 1997ending in 1999 resulting from the economic crisis in Asian.
Some analyst are of the view that the hard line measures adopted by the government in coming out with monetary and fiscal stimulus packages and assurance from China's Premier Wen Jiabao to come out with more measures in the coming months to prop up the sagging economy (See: China aims to be first to recover from global financial crisis) could cause consumer prices to decline in the near future before bouncing back in the second half when the economy may stabilise.
However, others are of the opinion that China may show signs of deflation in the first half of 2009 due to drop in commodity prices, with CPI hitting a 12-year high of 8.7 per cent in February 2008 and consumers and companies may delay spending. The government's on-going fiscal stimulus packages and other measures could stabilize the CPI and the economy in the second half.
The January CPI and WPI indices raises hopes of a further multibillion-dollar stimulus package from the government to bolster growth, after its massive $586 billion stimulus package in November,2008.(See: China pumps $586 billion to bolster economy) and possibility of its sixth interest rate cut, to ease monetary policy further to increase domestic demand after the last one in December amid fears that economic growth may fall significantly leading to more job losses and unrest in the country.(See: China cuts interest rate fifth time in three months)
Last year in November, Zhou, Central bank Governor had said that the deepness of the interest rate cuts will depend on "our estimates and the actual statistics of consumer price index (CPI) to make the final rate cut decisions. (See: China likely to further cut interest rates)
The measures adopted by the Chinese government in the near term as well as the continued global bail out packages of other countries like that of the US $800 billion package okayed yesterday (See: Senate follows House in approving President Obama's $800 billion-plus stimulus plan) may help the world economy including China to show signs of improving at a slow pace in the second half of 2009, provided the packages are well implemented.
