Chinese prices post first fall in six years

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The Consumer Price Index fell 1.6% in February on sharp drops in food and commodity prices. The weakness underlined the global extent of the downturn.

While consumers might welcome falling prices, if it persists deflation can postpone spending, cut profits and increase debt burdens, prompting companies to slash jobs, wages and investment.

"Deflation is the symptom of a weak real economy and industrial overcapacity, which has left companies with little pricing power," said Jing Ulrich at JPMorgan.

But she said China's deflationary trend was likely to be temporary and should reverse as the impact of government spending to stimulate demand takes hold.

Government officials said the fall was "due to declining prices for basic commodities on international markets and should not be interpreted as a sign of deflation".

China's inflation rate peaked at a 12-year high of 8.7% in February 2008 and rose 1% in January.