China’s consumer prices marked their longest streak of declines since 2009, threatening a deflationary spiral that may require more government support to reverse. Its export growth engine is also faltering.
The consumer price index slipped 0.3% in December from a year earlier, in line with economists’ expectations for a third straight month of declines. Factory-gate costs dropped 2.7% and have been falling for more than a year because of lower commodity prices and weak demand at home and abroad.
“China needs to act boldly to break the deflationary cycle. It will fall into a negative spiral otherwise,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd., adding that firms have been cutting their selling prices and migrant workers have been slashing asking wages as price pressures persist.
He’s among economists predicting rate cuts to shore up domestic demand and confidence, which has remained weak over the past year. Most analysts surveyed by Bloomberg project the People’s Bank of China will on Monday lower the rate on its one-year policy loans for the first time since August, as well as inject more cash into the financial system to meet funding demands.
The sustained deflation is also dragging down the value of Chinese exports and making them cheaper for foreign consumers. In October, the index of export prices hit the lowest in data back to 2006, and was only slightly higher in November.
