On Friday, an economist with the State Council’s Development Research Center issued a warning that consumer prices could fall in the second half of this year. “China has corrected its excessive monetary policy tightening in the last quarter of 2011, but the speed and effort of turning-around are not sufficient,” wrote Wu Qing in a government newspaper, China Economic Times. “A typical deflation will emerge,” Wu predicted, if the central government does not take decisive action. The last month that China saw a year-on-year decline in consumer prices was October 2009.
This week, Beijing’s National Bureau of Statistics will issue the Consumer Price Index for January, and analysts expect another fall in the rate of inflation. In December, consumer prices, as measured by the index, rose 4.1% over the same month in 2010. That number was down from November’s 4.2% year-on-year figure. Inflation peaked in July at 6.5%.
The official inflation numbers undoubtedly mask the full extent of price increases, but they correctly show the trend. And should China actually fall into deflation later this year, as Wu suggests, that would be just another indication of a general falloff in economic activity.
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