• Consumer Prices Rose 0.3% MoM But Sinks 0.8% YoY
   
• Core inflation moderated to 0.4% YoY and services inflation were steady 1.0% YoY

• Factory deflation persists

• The strength of China’s reflation would hinge on the return of consumer confidence

Consumer prices drop at fastest pace since global financial crisis

China’s Consumer Price Index (CPI) took a notable dip in January, registering decrease of -0.8% YoY, marking a significant deepening of deflationary pressures from the previous month’s -0.3%. This downturn represents the fourth consecutive negative reading and the most substantial fall observed since 2009, over fourteen years ago.

The decline was particularly pronounced in food prices, which was down -5.9% YoY (Dec: -3.7%; Nov: -4.2%). Food inflation has been in negative territory for 7 consecutive months. However, it is worth noting that January's data may look particularly poor due to the holiday effect from last year's Lunar New Year occurring in January, while this year's is set for February. Household demand for food products for the holiday feast results in food prices surging around the holiday period. However, non-food inflation also came in softer at 0.4% YoY. The biggest drag in non-food inflation remains in transportation & communication (-2.4% YoY), where a decline in vehicle and communication device prices continued to suppress inflation. Despite the annual downturn, CPI saw a slight month-on-month increase of 0.3%.

Meanwhile, core CPI, which excludes volatile energy and food prices, rose by a modest 0.4% YoY, slowing from December’s 0.6% YoY increase. On a monthly basis, this translated into a 0.3% growth in January from December

The National Bureau of Statistics (NBS) attributed January’s inflation figures to the high base effect associated with the Spring Festival, or Lunar New Year, which occurred in January the previous year. The festival falls in February this year.

Source: BIMB Securities Research - 9 Feb 2024