CHINA CONSUMER PRICES FALL FOR FIRST TIME SINCE 2002
Li Yanping and Nipa Piboontanasawat
Bloomberg, March 10, 2009
China’s consumer prices fell for the first time since 2002 as food, clothing and fuel costs declined, threatening growth in the world’s third-largest economy.
Consumer prices dropped 1.6 percent in February from a year earlier, when they reached an 11-year high, the statistics bureau said today. The median estimate in a Bloomberg News survey of 10 economists was for a 1 percent decline. Producer prices fell 4.5 percent, the most in a decade.
The drop in prices raises the risk that deflation will become entrenched, prompting consumers to delay purchases, squeezing company margins and triggering wage cuts. Premier Wen Jiabao, who last week set a 4 percent inflation target for 2009, is relying on a surge in lending and a 4 trillion yuan ($585 billion) stimulus package to spark an economic recovery.
“Deflation, though a real concern, is expected to be a temporary phenomenon,” said Jing Ulrich, head of China equities at JPMorgan Chase & Co. in Hong Kong. The government may cut interest rates and banks’ reserve requirements and add measures to spur consumption to avoid “extended” deflation, she said.
The yuan traded at 6.8398 against the dollar as of 12:32 p.m. in Shanghai from 6.8402 before the data was released. The Shanghai Composite Index of stocks rose 0.5 percent.
Li Yanping and Nipa Piboontanasawat
Bloomberg, March 10, 2009
China’s consumer prices fell for the first time since 2002 as food, clothing and fuel costs declined, threatening growth in the world’s third-largest economy.
Consumer prices dropped 1.6 percent in February from a year earlier, when they reached an 11-year high, the statistics bureau said today. The median estimate in a Bloomberg News survey of 10 economists was for a 1 percent decline. Producer prices fell 4.5 percent, the most in a decade.
The drop in prices raises the risk that deflation will become entrenched, prompting consumers to delay purchases, squeezing company margins and triggering wage cuts. Premier Wen Jiabao, who last week set a 4 percent inflation target for 2009, is relying on a surge in lending and a 4 trillion yuan ($585 billion) stimulus package to spark an economic recovery.
“Deflation, though a real concern, is expected to be a temporary phenomenon,” said Jing Ulrich, head of China equities at JPMorgan Chase & Co. in Hong Kong. The government may cut interest rates and banks’ reserve requirements and add measures to spur consumption to avoid “extended” deflation, she said.
The yuan traded at 6.8398 against the dollar as of 12:32 p.m. in Shanghai from 6.8402 before the data was released. The Shanghai Composite Index of stocks rose 0.5 percent.
“We can’t yet draw the conclusion that deflation has arrived,” the statistics bureau said in a statement. It cited falling raw-material prices and one-off factors, including the timing of a Lunar New Year holiday and blizzards that pushed up food prices a year ago.
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