China’s producer price index holds steady in February as deflation stalks economy
- February producer prices rise 0.1 per cent from a year earlier, same as January
- February consumer prices slow to 1.5 per cent from a year earlier, down from 1.7 per cent in January, as food prices slow sharply
China’s producer prices were stable at a very low level in February, with the risk of a fall back into damaging deflation in the coming months hanging over the economy.
Producer price inflation (PPI) edged up 0.1 per cent in February from a year earlier but was the same rate as in January, which was a 28-month low. The February result was below expectations of a rise to 0.2 per cent, according to a Bloomberg survey. As in January, the PPI eked out a tiny gain amid broad-based weakness in prices of raw materials and consumer goods.
Factory prices are just a hair’s breadth away from deflationary territory, where producers are forced to offer wholesalers lower prices for goods and services, eating into profits and reducing firms’ ability to hire and invest.
China’s previous experience with PPI deflation lasted for four years between early 2012 and mid-2016.
A prolonged deflationary period can be dangerous for a country’s economy as it discourages spending and investment because of expectations that prices will be cheaper in the future. The phenomenon can lead to economic stagnation and higher unemployment.
The government expressed concerns over the economy at the meeting of the National People’s Congress (NPC) this week, stressing the need for stability.
