China’s consumer prices swing into decline as deflation risks build

CHINA’S consumer prices posted their first annual decline in more than two years in July, while factory gate prices extended their falls, data showed on Wednesday (Aug 9), as lacklustre demand weighed on the economy.

The consumer price index (CPI) for the month dropped 0.3 per cent year-on-year, the National Bureau of Statistics (NBS) said, a slightly slower fall than the median estimate for a 0.4 per cent decrease in a Reuters poll.

It was the first year-on-year decline since February 2021. CPI was unchanged in June.

The producer price index (PPI) fell for a 10th consecutive month, down 4.4 per cent from a year earlier after a 5.4 per cent drop the previous month.

That compared with a forecast for a 4.1 per cent fall.

China’s economic recovery slowed after a brisk start in the first quarter, as demand at home and abroad weakened.

The authorities have rolled out a flurry of policy measures to support the economy, with more steps expected.

The drop in consumer prices is more cause for concern with mounting deflation pressures amid faltering economic growth due to persistent property downturn and falls in imports and exports.

However, the authorities have downplayed concerns about deflation.

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Liu Guoqiang, deputy governor of the central bank, last month said there would be no deflationary risks in China in the second half of the year.

But he noted that the economy needs time to return to normal after the pandemic.

The government has set a consumer inflation target of around 3 per cent this year, which is up from 2 per cent recorded in 2022.

Despite recent policy stimulus, consumers and manufacturers remained cautious amid the still-weak housing market and high youth unemployment, and a diminishing appetite among foreign firms to invest in China.

Investors have been anxiously waiting for China’s policymakers to inject stimulus measures after the powerful Politburo meeting last month, with the stock market mostly underwhelmed by the lack of concrete actions. REUTERS