China narrowly avoided slipping into deflation last month with prices rising at their slowest pace in nine months, official figures showed Thursday, as Beijing struggles to kickstart consumer activity in the world’s No. 2 economy.
The tepid reading comes after the government unveiled a range of measures at the end of last year aimed at boosting consumption as well as providing support for the troubled property sector, including interest rate cuts.
However, data showed that has not yet filtered through, with growth in the consumer price index (CPI), a key measure of inflation, easing to 0.1 percent last month, from 0.2 percent in November, according to the Chinese National Bureau of Statistics. The reading is the lowest since March.
Photo: EPA-EFE
A survey of economists had forecast 0.1 percent.
However, core CPI — which excludes volatile food and fuel prices — picked up for a third month to 0.4 percent from a year ago, reaching the highest level since July last year, the bureau said.
For the whole of last year, prices were up 0.2 percent, the same as the previous year.
Sluggish spending — combined with persistent woes in the property sector and local government financing strains — has cast doubt on the feasibility of official growth targets.
China emerged from a four-month period of deflation in February last year, a month after suffering the sharpest fall in prices for 14 years.
While deflation suggests the cost of goods is falling, it poses a threat to the broader economy as consumers tend to postpone purchases under such conditions, hoping for further reductions.
A lack of demand could then force companies to cut production, freeze hiring or lay off workers, while potentially also having to discount existing stocks — dampening profitability even as costs remain the same.
The latest data showed that factory deflation extended into a 27th month last month, though the producer price index recorded a slower drop of 2.3 percent, according to the bureau.
“Recent economic data stabilized but the momentum is not strong enough to generate upward pressure on consumer prices yet,” Pinpoint Asset Management chief economist Zhang Zhiwei (張智威) said in a note.
“The deflationary pressure is persistent,” he said.
Low inflation might lead to an increase of real interest rates, the Economist Intelligence Unit principal economist Yue Su (蘇月) said.
“So monetary easing policy needs to be more proactive to really reduce the borrowing cost of enterprises, which is important for a broad recovery of the economy,” she said.
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