Chinese Economy Pressured as Inflation Hits Lowest in 14 Years

China’s consumer prices fell quickly last month, the fastest since the global financial crisis. This is currently putting pressure on the government to intervene and help the economy, which is struggling to recover and causing concerns in the markets.

In January, the consumer price index dropped by 0.8% compared to a year ago, according to the National Bureau of Statistics – the weakest since September 2009.

This drop was worse than economists’ expectations, who had predicted a 0.5% decrease only.

The producer price index also fell by 2.5%, which is slightly less than the expected 2.6% decrease.

 

Source: National Bureau of Statistics/Bloomberg

The latest data might make more people urge China to take action to boost the economy, and stop the stock market from falling further.

Even though the government has been trying to help by adding stimulus, like giving banks more money for the long term, and issuing more government bonds for building projects, confidence in China’s economy remains on the weaker side.

China has implemented several measures to halt the $5 trillion sell-off in equities. President Xi Jinping was scheduled to receive a briefing from regulators on the market decline, as reported by Bloomberg News earlier.

Furthermore, on late Wednesday, China sent the markets into a state of shock by replacing the head of the primary securities regulator, which has caused significant ripples throughout the industry.

While inflation remains a concern for the country, deflation also poses serious risks.

If China fails to reverse this trend effectively, it could trigger a downward spiral, where people delay purchases due to expectations prices would continue to drop. This would dent overall consumption, and subsequently, impact businesses negatively.