China’s consumer prices fell at their steepest pace in more than 14 years in January while producer prices also dropped, ramping up pressure on policymakers to do more to revive an economy low on confidence and facing deflationary risks.

The world’s second-biggest economy has been grappling with slowing prices since early last year, forcing policymakers to cut interest rates to spur growth even as many developed economies were focused on taming stubbornly high inflation.

The consumer price index (CPI) fell 0.8 per cent in January from a year earlier, after a 0.3 per cent drop in December, data from the National Bureau of Statistics (NBS) showed on Thursday. The CPI rose 0.3 per cent month-on-month from a 0.1 per cent uptick the previous month.

Economists polled by Reuters had forecast a 0.5 per cent fall year-on-year and a 0.4 per cent gain month-on-month.

The annual CPI decline in January was the biggest since September 2009, mainly led by a sharp drop in food prices, but analysts warn the overall deflationary impulse in the economy risks becoming entrenched in consumer behaviour.

“The consumer price index data on Thursday shows China faces persistent deflationary pressure,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“China needs to take actions quickly and aggressively to avoid the risk of deflationary expectation to be entrenched among consumers.”

The Asian giant has struggled to regain economic momentum since the end of COVID curbs in late 2022, and nervous investors have dumped Chinese stocks amid a deepening property crisis and local government debt risks. Global demand has also remained relatively soft, with an official survey showing activity in China’s vast manufacturing sector contracting in January.

Chinese stocks retreated shortly after the weak consumer price index data before rebounding again, helped by the recent rapid-fire support measures.

The economy grew 5.2 per cent in 2023, meeting the official target of around 5 per cent, but the recovery has been much shakier than investors had expected.

Policy insiders expect Beijing to maintain a growth target similar to last year of around 5 per cent.

China’s central bank in late January announced the deepest cut to bank reserves in two years, sending a strong signal of support for the fragile economy but analysts say policymakers need to do more to lift confidence and demand.

Core inflation, which strips out volatile food and energy prices, gained 0.4 per cent from a year earlier, down from a 0.6% gain in December.

CPI rose 0.2 per cent last year, missing the official target of around 3 per cent, the 12th straight year that inflation had undershot annual targets.