China slides into deflation as consumer and factory prices drop
China Slides Into Deflation as Consumer and Factory Prices Drop
Producer prices fell for a 10th consecutive month, contracting 4.4% in July from a year earlier, slightly worse than expected. It’s the first time since November 2020 that both consumer and producer prices registered contractions. China is experiencing a rare period of falling prices as consumer and business demand weakens after an initial burst in the first quarter following the ending of pandemic restrictions. A prolonged property market slump, plunging demand for exports and subdued consumer spending are weighing on the economy’s recovery.
“They need to accelerate all the government spending, raising government debt and do coordinated monetary and fiscal easing, to break this debt deflation trap,” Xing said. Beijing has tried to downplay the risk of deflation in the economy with some Chinese-based analysts saying they were instructed by regulators and their companies not to discuss the matter publicly. PBOC officials said last week that China will avoid deflation in the second half of the year, with consumer-price growth likely to trend closer to 1% by the end of the year.
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