BEIJING (AFP) – China’s inflation plunged to a more than five-year low of 0.8 per cent in January, official data showed Tuesday, fuelling fears the world’s second-largest economy is on the brink of a deflationary spiral.
The rise in the consumer price index (CPI) was sharply down from the 1.5 per cent recorded in December, and was the weakest since 0.6 per cent recorded in November 2009, according to the National Bureau of Statistics.
It was also short of the median forecast of 1.0 per cent in a survey of analysts by Bloomberg News and came despite a surprise interest rate cut in November.
Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.
Analysts warned of deflation in China, a key driver of global expansion, and urged Beijing to take more measures to boost the economy.
“The weak inflation profile suggests that the deflation has become a real risk for China, thus paving way for further monetary policy easing,” ANZ economists Liu Ligang and Zhou Hao said in a research note.
Liu Dongliang, an analyst with China Merchants Bank in Shanghai, noted that consumption may have started to be affected by China’s growth slowdown, as services and consumer goods prices slumped last month.
“We should get vigilant about this sign and pay high attention to changes in the job market,” he said in a research note.
“Consumption played a key role in stabilising economic growth last year. If consumption cools down while investment struggles to rebound, the economy will face even more trouble,” he said.
China’s economy grew 7.4 per cent in 2014, its weakest for almost a quarter of a century, and slower than the 7.7 per cent in 2013.
CPI was 2.0 per cent last year, down from 2.6 per cent in 2013 and well below the government’s target of about 3.5 per cent.