China’s consumer prices decline as deflation risks increase.

China's consumer prices decline as deflation risks increase.

China’s Consumer Prices Decline Amidst Lackluster Economy

In a recent report, China’s consumer prices have posted their first annual decline in over two years, while factory gate prices continue to fall. These developments come as lackluster demand weighs on the country’s economy.

The National Bureau of Statistics (NBS) has revealed that the Consumer Price Index (CPI) for the month of July dropped by 0.3% year-on-year, slightly lower than the median estimate of a 0.4% decrease. It marks the first year-on-year decline since February 2021, following a period of stability in June.

Meanwhile, the Producer Price Index (PPI) has fallen for the tenth consecutive month, dropping 4.4% compared to the previous year, after a 5.4% decline in the prior month. These figures are slightly higher than the forecasted 4.1% fall.

China’s economic recovery, which began with a strong start in the first quarter, has slowed down as both domestic and international demand weakened. In response to this slowdown, authorities have implemented several policy measures to support the economy, with more expected in the future.

The decline in consumer prices raises concerns about mounting deflation pressures amidst faltering economic growth. The persistent property downturn and decreases in imports and exports contribute to these worries. However, Chinese authorities have downplayed the concerns about deflation. Liu Guoqiang, the deputy governor of the central bank, stated last month that there would be no deflationary risks in China during the second half of the year. Nevertheless, he emphasized that the economy needs time to return to normal after the impact of the pandemic.

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The Chinese government has set a consumer inflation target of around 3% for this year, which is higher than the recorded 2% in 2022.

Despite recent policy stimulus, both consumers and manufacturers remain cautious due to the weak housing market, high youth unemployment, and a diminishing appetite among foreign firms to invest in China. These factors contribute to the hesitancy and caution observed in the market.

Investors have eagerly awaited policymakers to introduce stimulus measures following a powerful Politburo meeting last month. However, the lack of concrete actions has left the stock market underwhelmed.

In conclusion, China’s consumer prices have experienced a decline, signaling potential deflationary risks faced by the economy. While authorities remain confident that there will be no deflationary risks in the second half of the year, concerns about mounting deflation pressures persist. The government’s target of achieving a consumer inflation rate of around 3% this year demonstrates their commitment to addressing these deflationary concerns. However, cautious consumers and manufacturers, along with a diminishing foreign investment appetite, pose challenges to the country’s economic recovery. Despite investors’ hopes for additional stimulus measures, the lack of concrete actions has left the stock market disappointed.

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