China slipped into deflation as consumer prices contracted last month for the first time in more than two years, official data showed Wednesday, as slowing domestic spending weighs on the country's post-Covid economic recovery.
The Consumer Price Index, the main gauge of inflation, fell 0.3 in July, the National Bureau of Statistics said, having flatlined in June.
Analysts polled by Bloomberg had anticipated a 0.4 percent decline in the index for July.
It is the second round of disappointing data for the Chinese economy this week, after figures Tuesday showed the country suffered its biggest fall in exports for more than three years.
Deflation refers to falling prices of goods and services and is caused by a number of factors, including waning consumption.
And while cheaper goods may appear beneficial for purchasing power, deflation poses a threat to the broader economy.
As prices fall, consumers tend to postpone purchases in the hopes of further price cuts.
A lack of demand then forces companies to reduce production, freeze hiring or lay off workers, and agree to new discounts to sell off their stocks -- weighing on profitability even as costs remain the same.
China experienced a short period of deflation at end of 2020 and early 2021, due largely to a collapse in the price of pork, the most widely consumed meat in the country.
Prior to that, the last deflationary period was in 2009.
And many analysts fear a longer stretch of deflation this time around, as China's main growth engines stall and youth unemployment is at a record high of over 20 percent.
Ongoing turmoil in real estate, a sector that has long accounted for a quarter of China's GDP, is the "main source" for this "deflationary shock", said economist Andrew Batson of Gavekal Dragonomics.
Deflation is also being driven by flagging exports -- historically a key source of growth for the Chinese economy, Batson said.
Wednesday's data comes after July saw the strongest decline in exports in more than a year -- down 14.2 percent -- precipitated by weak demand abroad.
This has had a direct impact on tens of thousands of export-oriented companies in China, which are now operating at a much slower pace.
Meanwhile, the producer price index fell again in July by 4.4 percent, marking the 10th consecutive month of contraction.
The index measures the cost of goods leaving factories and gives an overview of the health of the economy and was down 5.4 percent in June this year.
Declining producer prices mean reduced margins for companies.
© 2023 AFP
5 Comments
EFD
Whoopsie!
I thought the centrally planned, Economy was the wave of the future according to the apologists for autocracy?
Turns out, not so much. Even including stealing all it's technology, the CCP cannot manage it's economic house any better than any other thug-ocracy.
Speed
I like how this article explains how deflation impacts an economy to the audience of JAPAN Today.
This and recessions have been what Japan's economy has been about since the bubble burst three decades ago.
isabelle
So, it turns out that oppressing your country's people, funneling trillions to your military rather than public welfare, committing genocide, cracking down on businesses that don't follow Xi Jinping Thought, illegally occupying your neighbors' territory, stealing other countries' technology, and ***ing off all your trading partners for decades... somehow doesn't* make for a good economy? Who'd have thought it?
And, as I said on another thread, this is official "data with Chinese characteristics," so the real picture in the country is undoubtedly far, far worse.
Of course, Xi will say that it's not his catastrophic policies that are to blame, but the people who fail to correctly implement his faultless Imperial Edicts.
Jasper Cole
CCP's crackdown on its own people and businessmen is the main reason behind this deflation. We have a living example of Jack Ma. For the new generation of China, Jack Ma was a role model and inspiration to dream big and achieve their goals. His growing popularity and influence among youth were taken as a threat by CCP.
dagon
Another real estate bubble like Japan.
https://blogs.lse.ac.uk/cff/2023/03/08/is-china-turning-japanese/
And which shows how Xi and the Chinese rulers who have embraced hyper-financializtion of capital have turned away from their socialist roots.
Chinese communists used to drag landlords out and thrash them in the streets and nationalize and distribute their property, such as done with the SCAP rule post-war and which led to Japanese Bubble prosperity.
Th Chinese former communists have studied capitalist doctrine well but are falling into the same neo-liberal pitfalls leading to similar boom and bust cycles.