China enters deflation as prices experience first decline since early 2021
In July, China's consumer price index registered a 0.3 percent decline, following a period of stability in the previous month.
The Chinese economy entered a deflationary phase, with the Consumer Price Index (CPI) registering a 0.3 percent decrease in July, as revealed by data released on Wednesday by the National Bureau of Statistics. This decline follows a period of stagnation in the previous month.
The recent decrease in prices is another indication of a worsening outlook for the world’s second-largest economy. This follows a series of negative developments, including a 14.5 percent decline in exports last month, marking the third consecutive decrease and the most significant drop in three years.
In the latter part of 2020 and the early months of 2021, China encountered a brief period of deflation, primarily triggered by a widespread collapse in pork prices across the nation.
Economists generally hold a negative perspective on deflation, as lower prices typically result in decreased consumer spending and a subsequent reduction in production. This, in turn, can lead to job cuts and salary reductions.
China’s economy has experienced a deceleration due to diminishing demand both domestically and internationally. This comes after a rapid recovery from the initial impact of COVID-19 and stringent pandemic restrictions implemented earlier in the year.
Beijing has unveiled a series of policy measures aimed at bolstering the economy, which includes enhanced support for private enterprises. Additionally, there are expectations of further policy initiatives that will be introduced in the upcoming weeks.
Zhiwei Zhang, the chief economist at Pinpoint Asset Management in Hong Kong, conveyed that the waning economic momentum is a result of subdued domestic demand.
“At this juncture, it remains uncertain whether the recently announced policies will swiftly reverse the current economic trajectory. The deflation in Consumer Price Index (CPI) could potentially intensify the government’s deliberation on implementing supplementary fiscal stimulus measures to address this challenge.”
