Chinese economy falls into deflation amid weakening demand

 The Chinese economy has slipped into deflation, with consumer prices falling for the first time in more than two years in another sign of weakening demand, CNN reported on Wednesday.

The consumer price index (CPI) fell by 0.3 per cent in July from a year ago, according to China’s National Bureau of Statistics on Wednesday.

Notably, this is the first time the index has fallen since February 2021.

The cost of food, transportation, and household goods all declined in July. In particular, pork prices were down 26 per cent, and vegetable prices were down 1.5 per cent, CNN reported.

The producer price index (PPI), another parameter which measures goods prices at the factory gate, also dropped by 4.4 per cent in July from a year earlier. It was the 10th straight drop in PPI and the first time since November 2020 that consumer and producer prices have fallen in the same month, as per CNN.

Meanwhile, the signs of deflation have become more prevalent in the world’s second-biggest economy in recent months, sparking concerns that China could enter a prolonged period of stagnation.

“Evidence of combined consumer and producer price deflation undoubtedly endorse the notion of a broad-based economic slowdown in China,” CNN quoted the analysts from ING Group stating in a research note.

China’s gross domestic product barely grew in the April to June period compared with the previous quarter. This came after an initial burst in economic activity triggered by the lifting of pandemic restrictions late last year faded. Beijing is also suffering from a prolonged slump in its real estate sector and weak trade.

China refrained from the giant Covid-support seen in developed economies. While this helped it avoid the rampant inflation shock seen elsewhere, disposable household income fell as wages and property asset values simultaneously stalled, CNN reported citing UBS analysts from a recent research note.

The Chinese government has also tweaked interest rates, promised more support for the private sector and taken incremental steps to boost the property market but those measures have done little to revive the economic recovery.

Analysts are of the opinion that Beijing must roll out more forceful plans to restore confidence and stimulate consumer spending.

“The economic momentum continues to weaken due to lacklustre domestic demand,” CNN quoted Zhiwei Zhang, the president and chief economist for Pinpoint Asset Management.

CPI deflation may put more pressure on the government to consider additional fiscal stimulus, he added.

Also, Beijing’s scope for a big stimulus package is limited, however, by concerns about rising levels of national debt, CNN reported. (ANI)