China emerges from deflation.

For the first time in nearly six months, consumer prices in China have risen again, helping the economy escape deflation.

On March 9th, China's National Bureau of Statistics released data showing that the country's consumer price index (CPI) rose 0.7% in February. This marks the first time in nearly six months that China's CPI has increased.

Prior to this, the country recorded four consecutive months of deflation. In January 2024, China's CPI fell by 0.8% – the sharpest decline in 15 years.

Deflation is defined as a sustained and large-scale decrease in the prices of goods and services over a certain period. This is not positive for the economy because when consumers and businesses delay spending in the expectation of further price drops, economic activity is hampered.

Pork at a wholesale market in Beijing, China. Photo: Reuters

Compared to the previous month, China's CPI rose 1% in February. This rate was higher than economists' forecasts in a Reuters survey.

The latest figures have somewhat eased pressure on the world's second-largest economy, amid declining domestic demand, a still-crisis real estate market, and persistently high levels of local government debt. Last month, the People's Bank of China (PBOC) cut its five-year benchmark lending rate for the first time since mid-2023 to support the economy.

Nevertheless, the country's producer price index (PPI) in February fell 2.7% year-on-year. This decline was sharper than Reuters had forecast.

China's Producer Price Index (PPI) has fallen for 16 consecutive months, eroding factory profit margins. Industrial output and employment in China are therefore under threat. Data from the Chinese Ministry of Commerce in 2022 showed that approximately 180 million people are employed in export-related jobs.

China has been struggling with slow growth throughout the past year. Officials have pledged further stimulus measures, as those implemented since June 2023 have had little effect. This year, China aims for growth around 5%, the same as last year.

Nevertheless, China has so far directed its financial resources toward manufacturing rather than consumption. Analysts argue that this is exacerbating overcapacity and deflationary fears, even in booming sectors like electric vehicles.

Ha Thu (according to Reuters, CNN)

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