Falling prices in China are screaming economic slowdown

Photo: Lam Yik Fei/Getty Images

Coming after the shock trade data over the weekend which showed a collapse in imports, the release of January CPI and PPI data from China this morning fairly screams slowing economic growth in the world’s second biggest economy.

China’s NBS said consumer prices rose just 0.3% in January against expectations of of rise of 0.4%. That’s not much of a miss but it dragged the year-on-year rate of growth in consumer prices down from 1.5% to just 0.8%, its lowest level since November 2009. That is a big step down and lower than the 1% year-on-year rate the market had expected.

Also sharply lower were producer prices, which showed an acceleration in the pace of deflation. Chinese PPI year-on-year to January fell 4.3%, against 3.8% expected and 3.3% last.

Weak demand equals no price pressure and eventually, even factoring oil’s big drops, the spiral of lower prices.

HSBC China Economists, Julia Wang and Jing Li in a note to clients said that today’s data, “confirmed the economic slowdown in January, while intensifying disinflation will weigh further on firms’ profit margins. This increases the need for further monetary easing. We continue to expect another 25bps cut to the policy rate in Q1.”

Already gripping parts of Europe, deflation’s touch is spreading as falling producer prices and weak demand drag consumer prices through disinflation toward deflation.

China can now be firmly added to the list and expectations of more PBOC easing and liquidity injections will grow in the days and months ahead.

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