China’s Deflation Has Officially Arrived As Prices Fall 1.6%

China’s Consumer Prices declined by -1.6% in February from the year prior as the global economic contraction reduced demand for the Asian giant’s good. This is the first time since Dec. 2002 that prices in the world’s third-largest economy decline. Producer Prices led the decline; the cost of manufacturing products has been falling consistently since August, ultimately plummeting by -4.5% in January. The last time wholesale prices fell by this much was in March 1999.

It was reported earlier today that China plans to reduce export taxes to zero. Such a move would allow supply pressures to ease domestic prices upward. As export taxes are reduced, the price for such goods decreases to those living abroad. When prices decrease, they tend to consumer more. While this is happening, those living in China see less supply of these products on their store shelves. And as supply decreases, prices increase.

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