China’s consumer prices fall at steepest pace in over 14 years

China’s consumer prices fell at their steepest pace in more than 14 years in January while producer prices also dropped, ramping up pressure on policymakers to do more to revive an economy low on confidence and facing deflationary risks.

The world’s second-biggest economy has been grappling with slowing prices since early last year, forcing policymakers to cut interest rates to spur growth even as many developed economies were focused on taming stubbornly high inflation.

The consumer price index (CPI) fell 0.8 per cent in January from a year earlier, after a 0.3 per cent drop in December, data from the National Bureau of Statistics (NBS) showed on Thursday. The CPI rose 0.3 per cent month-on-month from a 0.1 per cent uptick the previous month.

Economists polled by Reuters had forecast a 0.5 per cent fall year-on-year and a 0.4 per cent gain month-on-month.

The annual CPI decline in January was the biggest since September 2009, mainly led by a sharp drop in food prices, but analysts warn the overall deflationary impulse in the economy risks becoming entrenched in consumer behaviour.

“The consumer price index data on Thursday shows China faces persistent deflationary pressure,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“China needs to take actions quickly and aggressively to avoid the risk of deflationary expectation to be entrenched among consumers.”