As concerns mount regarding China's economic recovery from the pandemic, new data reveals that the nation's significant price indices have entered a deflationary phase. The National Bureau of Statistics (NBS) recently reported a 0.7% year-on-year decline in China's Consumer Price Index (CPI) for February.
This decline is symptomatic of ongoing economic challenges, with the CPI showing a marginal decrease of 0.1% year-to-date, and falling 0.2% in February compared to January. The decline in food prices, which fell by 3.3% year-on-year in February, has played a notable role in reducing price pressure.
Meanwhile, the CPI-core, which excludes certain food and energy costs, displayed a slight reduction of 0.1% year on year. According to NBS statistician Dong Lijuan, this recent deflation can be attributed to the timing of this year’s Spring Festival holidays. Last February witnessed a spike in food and service prices during the traditional holiday, establishing a high base that has influenced this year's figures. Additionally, the Producer Price Index (PPI), which gauges factory gate prices, decreased by 2.2% year-on-year in February, indicating potential over-capacity within certain industries.
Notably, prices within the ferrous metal smelting and pressing sector plummeted by 10.6% year-on-year, further highlighting the challenges facing the industrial sector. Despite Beijing and the People’s Bank of China maintaining an inflation target of around 3%, the inflation rate has remained below this threshold since 2020, slipping under 1% since early 2023.
The property market continues to be a particular area of concern, as February statistics showed that sales prices of existing homes declined by 7.3% year-on-year, corroborated by insights from the China Index Academy. Moreover, notable property developers, including China Evergrande, have recently entered bankruptcy, further complicating the economic landscape. At the recent annual 'Two Sessions' government meeting in Beijing, senior government officials pledged to implement macroeconomic stimulus measures aimed at fostering a path toward a 5% economic expansion by 2025.
As China navigates these complexities, it is crucial for investors and stakeholders to remain vigilant and informed about trends and impacts on the broader economy. Understanding these dynamics provides insight into future market movements and opportunities for growth as the nation works toward recovery..