March 3, 2024

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China raises deflation alarms due to falling food and car prices

China raises deflation alarms due to falling food and car prices

Consumer prices fell last month in China at the steepest pace since the global financial crisis in 2009, in the latest sign that weak spending and abundant production from factories and farms are forcing companies to make cuts.

The decline in consumer prices was mostly limited to food and electric cars. But wholesale prices charged by factories and other producers also fell last month, and have fallen from their year-earlier levels in every month since October 2022.

A widespread decline in the general level of prices, a phenomenon known as deflation, can be very disturbing for the economy. Low prices make it difficult for households and businesses to continue making monthly payments on mortgages, business loans and other debts.

“The deflation data adds to a host of other economic indicators that, combined with a faltering stock market and the collapse of the real estate market, pose an extraordinary challenge to the Chinese government’s command-and-control approach,” said Eswar Prasad, a professor of commerce. and Economics at Cornell University.

Chinese stock markets have fallen sharply this year, although they pared their losses this week. China said on Wednesday that the direct official most responsible for stock market supervision, Ye Huiman, has been replaced as head of the China Securities Regulatory Commission. Mr. Yi, 59, was replaced by Wu Qing, a longtime regulatory official.

Lower prices have one positive side for China: they make Chinese goods more competitive in foreign markets. With many Chinese households growing more concerned about spending, manufacturers of everything from electric cars to solar panels are increasing their exports to distant markets.

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Consumer prices fell 0.8 percent in January from a year earlier, a much larger decline than expected. The decline was driven by lower food prices, including a 17.3 percent drop in pork prices.

The price of pork can be volatile, especially around the Lunar New Year when family celebrations tend to increase demand. In 2023, the holiday fell in late January, likely resulting in higher pork prices for the month. This year, it's been nearly three weeks, meaning prices could rise in February.

Excluding food items, consumer prices increased by 0.4 percent. The decline in electric car prices was offset by a slow rise in the prices of clothing, healthcare and tourism.