ALBAWABA – China’s economy is tipping into deflation as consumer and producer prices fell in July for the first time since 2020, news agencies reported Wednesday.
The consumer price index registered its first decline in more than two years, falling 0.3 percent in July, year-on-year, the National Bureau of Statistics said Wednesday.
Meanwhile, producer prices fell for a 10th month in a row, contracting by 4.4 percent, according to Bloomberg.
This is the first instance in which both consumer prices and producer prices fall simultaneously in China, Bloomberg and Reuters confirmed.
It signals that China’s economy is tipping into deflation.
Consumer price index (CPI) fell less than expected, as forecasts priced a 0.4 percent decline in July. Whereas the producer price index (PPI) fell faster than the estimated 4.1 percent, Reuters reported.
China is the first G20 economy to report a year-on-year decline in consumer prices since Japan's last negative headline CPI reading in August 2021, the Canada-based news agency said.
"For China, the divergence between manufacturing and services is increasingly apparent, meaning the economy will grow at two speeds in the rest of 2023. Especially as the problem in real estate re-emerges," Gary Ng, Asia Pacific senior economist at Natixis, told Reuters.
"It also shows China's slower-than-expected economic rebound is not strong enough to offset the weaker global demand and lift commodity prices," the economist added.
The data comes a day after trade figures showed exports and imports both slumping in July and reports on more debt troubles in China's giant property sector.
What does it mean: China’s economy is tipping into deflation
Consumers and companies are opting to retain their cash rather than spending or investing it, despite lower interest rates, according to Reuters.
Slowing consumer demand in China, combined with a slump in the property sector, as well as rapidly falling exports, are all pushing manufacturers to cut prices to move excess stock, as reported by Bloomberg.
As China’s economy is tipping into deflation, it could ripple through to developed countries, where central banks like the Federal Reserve and Bank of England are still hiking interest rates to curb high inflation.
That “should help inflation in the US and Europe to moderate,” Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc, told Bloomberg.
