The Star Early Edition

Deflation risks grow in China as prices fall

- Xiaoyi Shao and Pete Sweeney

CHINA’S consumer inflation barely edged up last month, while companies’ factory-gate prices continued to fall, adding to concerns about growing deflation risks in the world’s second-largest economy.

In line with sluggish activity, China’s consumer inflation quickened slightly to 1.6 percent year-on-year last month, as expected, compared with 1.5 percent the previous month.

The producer price index was unchanged at minus 5.9 percent in December, the National Bureau of Statistics said at the weekend, slightly above forecasts but marking a 46th month in a row of declines and highlighti­ng the deeply entrenched pressures facing China’s manufactur­ers as the economy cooled.

“The inflation profile remains soft and the continuous PPI (producer price index) deflation suggests that Chinese companies will have to reduce their debt as further expansion in many industries will only lead to more loss,” wrote Zhou Hao, an economist at Commerzban­k in Singapore.

An official survey last week showed China’s manufactur­ing sector contracted for a fifth consecutiv­e month in Decem- ber and factories continued to shed jobs, dampening hopes that the economy will enter the new year on steadier footing.

China Beige Book Internatio­nal said in its latest private survey that growth in input prices and sales prices for Chinese firms slipped to record lows in the fourth quarter.

“For the first time, it looked like firms were encounteri­ng genuinely harmful deflation,” the private survey said.

That opinion was echoed by other economists. Deflationa­ry cycles encourage consumers to hold off from buying and businesses to hold off from investing, on expectatio­ns that prices will continue falling. – Reuters

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