China deflation accelerates in January as demand stagnates

Deflation in China accelerated at its fastest pace in 15 years, as weak demand continued to hamper Communist Party efforts to bolster the struggling economy.

The consumer price index fell 0.8% year-on-year in January, according to data released on Thursday – faster than the 0.5% expected, the fourth straight month of declines and biggest contraction since the 2008 financial crisis.

Food prices fell 5.9% year-on-year, with a 17% slump in pork prices a major contributor to the decline.

“In plain English, it means that the Chinese efforts to boost growth and bring inflation back are not working according to the plan,” said Swissquote analyst Ipek Ozkardeskaya.

“Money poured into the Chinese system doesn’t circulate in a way to stimulate economy – blame people who lost confidence – and the radical measures that the government has put in place to prop up equity valuations hardly help China’s battered stock markets to get back on their feet.”

"Another worry about the Chinese recovery is that because the Chinese dream has been dashed by a $7trln selloff in the equity markets, many could be tempted to take their loss and walk away in the slightest recovery. In summary, the road to a sustainable recovery seems far away.”

Reporting by Frank Prenesti for Sharecast.com