Data published by the National Bureau of Statistics (NBS) showed that in January the consumer price index fell by 0.8% per annum, accelerating compared to December (-0.3% per annum), and exceeding economists' forecasts (-0.5% per annum). It was also the sharpest drop since September 2009, indicating continued weakness in domestic demand. However, the print was dwarfed by a high comparison base last year when the Lunar New Year holiday, which usually boosts consumer prices, took place in January. On a monthly basis, consumer inflation rose by 0.3% compared with an increase of 0.1% in December. Consensus estimates suggested an increase of 0.4%.
Food prices fell by 5.9% per annum in January after falling by 3.7% per annum in December. Prices for non-food products increased by 0.4% per annum, slowing slightly compared to December (+0.5% per annum).
The core consumer price index, which does not include volatile food and energy prices, increased by 0.4% per annum compared with an increase of 0.6% per annum in December.
The report also showed that in January, the decline in producer prices slowed to 2.5% per annum from 2.7% per annum in December. Economists had expected a decrease of 2.6% per annum.
"Today's data shows that China is facing constant deflationary pressures. Therefore, the government should take swift and aggressive action to avoid the risk of entrenching deflationary expectations among consumers," Pinpoint Asset Management said.