China gets red alert to avoid Japanification as consumer price drops drag inflation to lowest level since 2009
- China’s consumer price index (CPI) fell by 0.3 per cent year on year in December, marking a third consecutive monthly decline amid fears of deflationary risks
- Concerns have risen that China is facing similar issues to Japan’s so-called lost decades of stagnation
China’s falling consumer prices in the fourth quarter have plunged full-year inflation to its lowest level since 2009, adding to calls for more government actions to address deflationary risks and avoid repeating Japan’s so-called lost decades of stagnation.
The producer price index (PPI), which measures costs for goods at the factory gate, fell for the 15th consecutive month in December and dropped by 2.7 per cent year on year, lower than the estimated dip of 2.6 per cent polled by Wind after falling by 3 per cent in the previous month.
Beijing’s policymakers have perceived high inflation as a constant threat, regularly setting a goal of capping annual consumer price growth at 3 per cent over the past decade.
But economists have argued that the mindset has to change as deflation would create more danger for the Chinese economy, especially at the time when confidence is already low and demand has remained weak.
“[Policymakers should realise] deflation will inflict damage as well,” Wang Tao, chief China economist at UBS, told a forum in Shanghai on Monday. “China should pay more attention to deflation.”
