A customer shops for food in Hangzhou, eastern China on Tuesday. Photograph: STR/AFP/Getty Images
Chinese inflation plunged to 0.8% in January, its lowest level for more than five years, official data showed on Tuesday, fuelling fears the world’s second-largest economy is on the brink of a deflationary spiral.
The rise in the consumer price index (CPI) was sharply down from the 1.5% recorded in December, and was lower than the 1% expected by economists.
It was also the weakest number since 0.6% in November 2009.
Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.
Slowing demand, a property downturn and falling commodity prices – especially oil – have all driven prices lower and point towards persistent weakness in the world’s second largest economy.
Warmer than average westher in January also caused vegetable, fruit and fish prices to fall, the NBS said.
Analysts warned of deflation in the Chinese economy, a key driver of global growth, and called for more economy-boosted measures by Beijing.
A collapse in global oil prices have already unleashed a wave of monetary easing around the world as central bankers from Europe to Canada to Australia sought to defuse the deflationary pressures and bolster their economies.
“The weak inflation profile suggests that the deflation has become a real risk forChina, thus paving way for further monetary policy easing,” ANZ economists Liu Ligang and Zhou Hao said in a research note.
Liu Dongliang, an analyst with China Merchants Bank in Shanghai, noted that consumption may have started to feel the pain of China’s growth slowdown, as services and consumer goods prices slumped last month.
“We should get vigilant about this sign and pay high attention to changes in the job market,” he said in a research note.
Falling inflation is likely to keep downward pressure on the price of other commodities such as iron ore, Australia’s biggest export earner, which has fallen 50% in the past 12 months.
However, the prospect of more stimulus measures in China pushed the Australian dollar higher to US78.4c.
Analysts also said that factory deflation was a big concern.
The data showed producer price index dropped 4.3% in January from a year earlier, worse than a 3.8% fall expected by analysts and extending factory deflation to nearly three years. Price cuts have sapped profitability of Chinese manufacturers.
China’s economy grew 7.4% in 2014, its weakest for almost a quarter of a century, and slower than the 7.7% in 2013.
CPI was 2% last year, down from 2.6% in 2013 and well below the government’s target of about 3.5%.
The central People’s Bank of China last week imposed an across-the-board cut in the percentage of funds banks must hold in reserve, the first such reduction in nearly three years to boost growth.
That followed November’s rate cut by the bank, the first in more than two years. Analysts had expected further monetary easing as the economy showed more signs of distress.
Data over the weekend showed a surprising plunge in China’s imports, adding to fears that China’s economy is still losing momentum despite the stimulus measures.
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