China deflation alarms raised by falling prices for food and cars

Consumer prices in China last month fell to the lowest since the 2009 global financial crisis, the latest sign that weaker spending and a surge in output from factories and farms are forcing businesses to offer discounts.

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 every month since October 2022 from a year earlier.

A broad decline in the overall level of prices, a phenomenon known as deflation, can be very troubling for an economy. Falling prices are making it harder for households and businesses to keep up with monthly payments on home loans, corporate loans and other debts.

“The inflation data adds to other economic indicators that, on top of a struggling stock market and unraveling property market, pose an unusual challenge to the Chinese government's command-and-control approach,” said Ishwar Prasad, a professor of commerce. and Economics at Cornell University.

China's stock markets have fallen sharply this week, although they are paring their losses this week. China said on Wednesday that Yi Huiman, the official directly responsible for overseeing stock markets, has been replaced as head of the China Securities Regulatory Commission. 59 year old Mr. Yi was replaced by longtime controller Wu Qing.

The decline in prices has a silver lining for China: it makes Chinese goods more competitive in foreign markets. As many Chinese households become more cautious 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, a bigger-than-expected drop from a year earlier. That decline was driven by falling food prices, including a 17.3 percent drop in pork prices.

Pork prices can be volatile, especially during the Lunar New Year when family celebrations boost demand. The holiday in 2023 falls to late January, which could push up pork prices for the month. This year it is almost three weeks later, i.e. in February the price may go up.

Excluding food, consumer prices rose 0.4 percent. Prices for electric cars have fallen, while prices for clothing, health care and tourism have slowly risen.

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