Deflation fears rise for China
Jamil Anderlini | Sunday, 15 March 2009
BEIJING: Prices paid by Chinese consumers fell for the first time in more than six years last month, the latest official data showed.
The figures prompted warnings from economists that the government must act quickly if the country is to avoid a bout of deflation.
China's benchmark consumer price index fell by 1.6 per cent in February from a year earlier, after a 1.0 per cent rise in January, amid cooling domestic demand and widespread overcapacity.
The year-on-year drop in prices marked the 10th consecutive month of moderating inflation and contrasted with an rise in the index of 8.7 per cent in February last year when food and energy prices were soaring.
Beijing has targeted headline inflation of 4.0 per cent this year. But analysts said the government would struggle to meet that target and would have to act quickly if it was to avoid a period of prolonged deflation.
"While the recent surge in money supply growth should translate into higher inflation, shrinking demand and excess capacity is instead generating deflation," said Jing Ulrich, chairman of China equities at JPMorgan.
The consumer prices fall was outstripped by a 4.5 per cent decline in the producer price index, which tracks prices paid at the factory gate. China's National Bureau of Statistics took the unusual step of issuing a statement saying it was too early for deflation to have taken hold and falls in the indices were mainly due to lower raw material prices and distortions from holidays. "Recent downward pressure on prices in China are very obvious but there is a big difference between our current situation and typical deflation," Yi Gang, vice-governor of the central bank, said.
Property prices in 70 Chinese cities fell 1.2 per cent in February from a year earlier, according to official figures, the steepest decline since records began in 2005.
Meanwhile, another FT report by Geoff Dyer in Beijing and Alan Beattie in Washington adds: Chinese Premier Wen Jiabao on Friday urged the US to take measures to guarantee its "good credit", expressing concern about the "safety" of his country's huge holdings of US government debt.
Mr Wen's shot at the US's deteriorating fiscal position - on the eve of this weekend's G20 finance ministers' meeting - was paired with a promise to increase China's public spending this year to boost its economy if needed.
The Chinese government is the largest holder of US public debt and Chinese officials have shown increasing signs of concern that the sharp increase in US government spending will lead eventually to inflation and a collapse in the dollar.
About 70 per cent of China's near-$2,000b foreign exchange reserves are believed to be in US dollar assets.
Mr Wen's pledge to go beyond the Rmb4,000bn ($584bn) stimulus programme Beijing announced last year if needed came amid calls from the US and the UK for countries with large trade surpluses to introduce large fiscal stimulus plans.
Mr Wen said China had "contingency plans to handle greater difficulties" and "enough ammunition" to launch "new economic stimulus policies at any time."
China has pledged 8.0 per cent economic growth this year, which Mr Wen said remained possible. The government has said it will run a 3.0 per cent budget deficit this year to finance stimulus measures.
Mr Wen also pushed back against growing pressure from the US and some other governments for China to make a large contribution to a refinancing of the International Monetary Fund.
The figures prompted warnings from economists that the government must act quickly if the country is to avoid a bout of deflation.
China's benchmark consumer price index fell by 1.6 per cent in February from a year earlier, after a 1.0 per cent rise in January, amid cooling domestic demand and widespread overcapacity.
The year-on-year drop in prices marked the 10th consecutive month of moderating inflation and contrasted with an rise in the index of 8.7 per cent in February last year when food and energy prices were soaring.
Beijing has targeted headline inflation of 4.0 per cent this year. But analysts said the government would struggle to meet that target and would have to act quickly if it was to avoid a period of prolonged deflation.
"While the recent surge in money supply growth should translate into higher inflation, shrinking demand and excess capacity is instead generating deflation," said Jing Ulrich, chairman of China equities at JPMorgan.
The consumer prices fall was outstripped by a 4.5 per cent decline in the producer price index, which tracks prices paid at the factory gate. China's National Bureau of Statistics took the unusual step of issuing a statement saying it was too early for deflation to have taken hold and falls in the indices were mainly due to lower raw material prices and distortions from holidays. "Recent downward pressure on prices in China are very obvious but there is a big difference between our current situation and typical deflation," Yi Gang, vice-governor of the central bank, said.
Property prices in 70 Chinese cities fell 1.2 per cent in February from a year earlier, according to official figures, the steepest decline since records began in 2005.
Meanwhile, another FT report by Geoff Dyer in Beijing and Alan Beattie in Washington adds: Chinese Premier Wen Jiabao on Friday urged the US to take measures to guarantee its "good credit", expressing concern about the "safety" of his country's huge holdings of US government debt.
Mr Wen's shot at the US's deteriorating fiscal position - on the eve of this weekend's G20 finance ministers' meeting - was paired with a promise to increase China's public spending this year to boost its economy if needed.
The Chinese government is the largest holder of US public debt and Chinese officials have shown increasing signs of concern that the sharp increase in US government spending will lead eventually to inflation and a collapse in the dollar.
About 70 per cent of China's near-$2,000b foreign exchange reserves are believed to be in US dollar assets.
Mr Wen's pledge to go beyond the Rmb4,000bn ($584bn) stimulus programme Beijing announced last year if needed came amid calls from the US and the UK for countries with large trade surpluses to introduce large fiscal stimulus plans.
Mr Wen said China had "contingency plans to handle greater difficulties" and "enough ammunition" to launch "new economic stimulus policies at any time."
China has pledged 8.0 per cent economic growth this year, which Mr Wen said remained possible. The government has said it will run a 3.0 per cent budget deficit this year to finance stimulus measures.
Mr Wen also pushed back against growing pressure from the US and some other governments for China to make a large contribution to a refinancing of the International Monetary Fund.