China's Prices Decline for Third Month... Growing Deflation Fears

CPI Down 0.3% Year-on-Year
Average Wages Decline, Consumer Sentiment Weakens

China's falling prices have continued for three consecutive months, raising concerns about deflation (a decline in prices amid economic recession).

On the 12th, China's National Bureau of Statistics announced that the Consumer Price Index (CPI) in December last year fell by 0.3% compared to the previous year. Although this is an improvement from the previous month's figure (-0.5%) and the forecast (-0.4%), it marks three consecutive months of negative growth since October (-0.2%).

[Image source=AFP Yonhap News]

The Producer Price Index (PPI) announced on the same day also fell by 2.7% year-on-year, marking 15 consecutive months of decline. Although it was lower than the forecast (-2.6%), the drop was smaller than last month’s (-3.0%).

Additionally, signs indicate that consumer sentiment is unlikely to revive easily due to China's high unemployment rate and declining average wages. According to Bloomberg, in the fourth quarter of last year, the average salary paid to new hires by companies in 38 major Chinese cities was 10,420 yuan (approximately 1.91 million KRW), a 1.3% decrease compared to the same period last year. This decline is the worst since the platform began conducting salary surveys in 2016.

Wages have shown a continuous decline through the second (-0.7%) and third quarters (-0.5%) of last year, extending into the fourth quarter. In particular, Beijing saw a 2.7% decrease year-on-year, marking four consecutive quarters of decline, while Guangzhou, the manufacturing hub, experienced a 4.5% drop.

Accordingly, the central bank is increasingly likely to respond with an interest rate cut. Bloomberg reported on the 11th (local time) that a survey of 15 economists expects the People's Bank of China to lower the Medium-term Lending Facility (MLF) rate, the policy interest rate, by 0.1 percentage points to 2.4% on the 15th. If implemented, this would be the first rate cut since August last year (a 0.15 percentage point cut).