China's deflation problems get worse
Source: CNN
Business Economy
China’s deflation problems get worse
By John Liu, CNN
3 minute read * Published 3:21 AM EDT, Mon March 10, 2025
Hong Kong (CNN) — Consumer prices in China have plunged to their lowest level in more than a year, highlighting persistent deflationary pressures in the world’s second-largest economy.
The Consumer Price Index (CPI), a benchmark for measuring inflation, fell by 0.7% in February from the previous year, China’s National Bureau of Statistics (NBS) said on Sunday. The decline was sharper than predicted by a Reuters poll of analysts, reversing January’s modest 0.5% increase and marking the first contraction since January 2024. ... Deflation is a problem because it gives people little incentive to spend right now, in expectation of lower prices. This tends to drag down consumption, which is an important component of economic growth.
The drop in February was partly influenced by an earlier-than-usual Lunar New Year holiday – when hundreds of millions of trips took place, boosting tourism and spending. The holiday fell entirely in January this year, compared with the previous one that extended into February. That means there was a much higher base of comparison in 2024. ... The NBS said consumer prices would have risen by 0.1%, excluding the impact of the earlier Spring Festival. The country’s core CPI, which excludes items with volatile prices like food and fuel, also declined by 0.1%, the first decrease since January 2021.
Meanwhile, the Producer Price Index (PPI), which tracks wholesale prices, saw a 2.2% reduction in February from the previous year. Factory-gate prices have been contracting for 29 consecutive months since October 2022. ... “Temporary seasonal distortions aside, both CPI and PPI inflation have been too low over the past two years, underscoring the supply and demand imbalance in the Chinese economy,” Goldman Sachs’ economists wrote in a Sunday research note.
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Read more: https://www.cnn.com/2025/03/10/economy/china-cpi-deflation-problems-intl-hnk/index.html
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