China slips into deflation as demand falters across country
China's consumer and producer prices experienced a decline in July, signaling deflationary pressure as demand weakens in the world's second-largest economy. The consumer price index dropped 0.3% from a year earlier, marking its first decline since February 2021, while producer prices contracted 4.4% in their 10th consecutive month of decline. Consumer and business demands have weakened in the country since the first quarter.
Fall in prices is likely temporary: National Bureau of Statistics
China's National Bureau of Statistics attributed the decline in consumer prices to a high base of comparison with last year, stating that the contraction is likely temporary. The core inflation measure, excluding volatile food and energy costs, increased to 0.8% from 0.4%, indicating underlying yet subdued demand in the economy. There is also an increase in the prices of services like education and recreation.
China's central bank is cautious about stimulus measures
Deflationary pressure is expected to spread to other countries through China's massive goods trade as export prices fall. Despite deflation boosting the case for monetary stimulus, the central bank remains cautious due to constraints and ongoing challenges such as a weaker yuan and high debt. The economic downturn is a result of long-term factors like prolonged property market slump and plunging export demand.
