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China likely to see deflation

10 February 2009 15:59 (UTC +04:00)

Bakuâ€“ APA-Economics. Chinese inflation slowed further in January as activity in the world’s third-largest economy weakened, government data showed Tuesday, prompting economists to warn deflation was imminent.
The consumer price index, the main gauge of inflation, was 1.0 percent in January, down from 1.2 percent in December, the National Bureau of Statistics said Tuesday, AFP reported.
Inflation was dropping speedily towards zero on a mixture of precipitous declines in global crude prices and a lack of momentum at home, economists said.
In an ominous sign of things to come, producer prices, which measure trends at the wholesale level, fell 3.3 percent in January, the second straight drop after a 1.1 percent drop in December, the state-run Xinhua news agency said.
The key figure that analysts look at in most economies is core inflation, which does not include food and energy prices, because they are considered too volatile.
China does not have a precise equivalent for core inflation, but the index that comes closest -- for non-food prices -- was down 0.6 percent in January from the same month a year ago.
China started 2008 with rapidly rising inflation, and the consumer price index hitting a near 12-year high of 8.7 percent in February.
Leaders in Beijing made inflation control the top objective in the first half of last year, but priorities changed as the global economic crisis started having an impact.
Food prices were a major factor behind the spike in inflation at the start of 2008 but costs began to fall in the second part of the year.
There was continued relief for consumers in January. Although food inflation stood at 4.2 percent in January, the price of pork, the most important meat in China, was down by 13.3 percent.
China’s economy grew by 9.0 percent in 2008, slipping back into single digits for the first time in six years, with expansion in the final quarter just 6.8 percent.
Compared with December, consumer prices in January rose 0.9 percent, the statistics bureau said.