Prices for producers decreased by 5.4% in June compared to the same month of the previous year. This was stronger than the 5% decline economists had been expecting. In May, the decline was still 4.6% year over year. Core inflation, the rate of inflation excluding fast-moving food and energy prices, was still above zero in June, at 0.4% compared with 0.6% in May.
Deflation means you can buy more for less money. Money thus becomes more valuable and the purchasing power of consumers increases. On the other hand, you can also decide to postpone purchases, because with the same money you can buy even more over time. As a result, companies have to sell their products and services at lower prices. These developments can lead to a downward spiral in prices.
Targeted measures
Chinese Premier Li Qiang spoke last week with several Chinese economists about possible measures against impending deflation. But he stressed that such support must be “targeted, comprehensive and well-coordinated”. The expectation is therefore that the measures will not be large-scale. What also doesn’t help is that Chinese local governments can spend less. Traditionally, they spend a lot to stimulate the economy, but now they are grappling with a high debt burden.
Inflation in China fell to zero percent in June. This was partly due to the fact that Chinese producer prices fell for the ninth consecutive month due to continued low demand from both domestic and international markets. This further fuels concerns about impending deflation.
Drip
Prices for producers decreased by 5.4% in June compared to the same month of the previous year. This was stronger than the 5% decline economists had been expecting. In May, the decline was still 4.6% year over year. Core inflation, the rate of inflation excluding fast-moving food and energy prices, was still above zero in June, at 0.4% compared with 0.6% in May.
Deflation means you can buy more for less money. Money thus becomes more valuable and the purchasing power of consumers increases. On the other hand, you can also decide to postpone purchases, because with the same money you can buy even more over time. As a result, companies have to sell their products and services at lower prices. These developments can lead to a downward spiral in prices.
Chinese Premier Li Qiang spoke last week with several Chinese economists about possible measures against impending deflation. But he stressed that such support must be “targeted, comprehensive and well-coordinated”. The expectation is therefore that the measures will not be large-scale. What also doesn’t help is that Chinese local governments can spend less. Traditionally, they spend a lot to stimulate the economy, but now they are grappling with a high debt burden.