Deflation worsens in China, prices at 14-year lows

In China the deflation problems are not over, but the dragon indices close the session above parity supported by optimism about greater interventions in favor of the markets by the Government.
In detail, the news of the surprise replacement of the head of the securities regulator raised the prospect of more forceful steps to support the stock market.
Meanwhile, the Asian power is experiencing a crisis on various fronts: the stock sell-off at the beginning of the year highlighted investors' mistrust in the dragon's recovery, while the weakness of the economic recovery and real estate insolvencies have continued to undermine the relaunch path of the country's second largest economy.
The inflation data that were updated today were highly anticipated precisely to understand whether there were signs of a revival of demand and, therefore, growth in consumption and general confidence.
The confirmation of deflation, however, underlined that China is still struggling to recover in an unfavorable global context between geopolitical tensions, commercial revolution and fragile global demand.
The Asian markets, however, closed today's session with a positive performance.
Negative note from Hong Kong's Hang Seng down 1.08% after Alibaba shares fell 6.5% when the Chinese giant missed revenue expectations in the December quarter.
read also China grappling with deflation: what happens beyond the Wall China, the crisis continues and deflation worsens In January, consumer prices in China suffered the sharpest drop in the last 14 years, while producer prices also fell fell, underlining the persistent deflationary risks facing the world's second largest economy as it struggles to recover.
In detail, the consumer price index (CPI) fell by 0.8% in January compared to the previous year, after a decline of 0.3% in December, data from the National Bureau of statistics (NBS).
The consumer price index increased 0.3% month-on-month compared to 0.1% in the previous month.
Economists polled by Reuters had forecast a 0.5% year-on-year decline and a 0.4% month-on-month gain.
January's annual decline in the consumer price index was the largest since September 2009.
“Today's CPI data shows that China faces persistent deflationary pressure.
China must act quickly and aggressively to avoid the risk of deflationary expectations taking root among consumers,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
read also Here's how China is exporting deflation to the world Chinese stock valuations are low, but to “lay the foundation for a multi-year uptrend, we really need to see inflation data improve quite significantly, back into territory positive,” Steve Brice, head of investment for wealth management at Standard Chartered, said on Bloomberg Television.
The producer price index (PPI) also fell 2.5% from a year earlier, following a -2.7% decline in the previous month, compared with a forecast of a 2.6% decline in the Reuters poll.
Factory prices fell 0.2% from the previous month, after falling 0.3% in December.
Prolonged factory deflation is threatening the survival of small Chinese exporters, stranded by declining business.
China has been grappling with slowing prices since early last year, forcing policymakers to cut interest rates to spur growth, the opposite of what was happening in developed economies, which were focused on containing stubbornly high inflation.

Author: A.W.M.

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