03/10/2009, 00.00
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Deflation leads to lowest prices in six years

Consumer price index drops by 1.6 per cent in February. Many are now concerned that deflation might take hold with a negative impact on industrial output, already affected by the collapse of exports.
Beijing AsiaNews/Agencies) – Prices dropped last month for the first time since December 2002. Government and experts warn that prolonged deflation has its dangers.

The consumer price index (CPI) fell 1.6 per cent in the year to February compared to a rise of 8.7 per cent over the previous 12 months. Leading the downward trend were clothing, fuel and food (with pork plunging 18.9 per cent).

The greatest fear is that a deflationary trend might take hold. Production has been hit by the collapse of exports to the United States and Europe and many are concerned that domestic demand might also decline in a chain reaction, with further cuts in output.

In fact all variables linked to industrial production are down. For instance, power demand in the first two months declined 3.7 per cent from a year earlier.

However, we “can’t yet draw the conclusion that deflation has arrived,” China’s statistics bureau said in a statement.

Falling prices for raw materials like oil, iron and metals are among the causes. One-off factors also played a role like the Lunar New Year, coming in late January this year, an event that is usually followed by a drop in consumption.

“Industry is still facing a serious situation” and we “cannot conclude that it is recovering,” Industry Minister Li Yizhong said.

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