Chinese inflation falls further

Consumer price inflation dipped to 0.8 % y-o-y in January, down from 1.5 % in December. China’s inflation rate has not been this low since 2009. Factors driving down inflation include lower fuel prices and slowing food price inflation. When food and energy prices are removed, the slowing in the inflation rate was more modest, dropping from an on-year rate of 1.3 % in December to 1.2 % in January.

Producer prices in January fell 4.3 % y-o-y. Drops in commodity prices, along with overcapacity in some industrial branches and weak domestic demand continued to underlie the long deflationary slide in producer prices.

Concerns have increased in recent months over the slowdown in inflation and economic growth. While many expect further monetary easing, the PBoC has to take into account that this may exacerbate China’s growing debt problems.

Consumer and producer price inflation in China, %

Source: Bloomberg