Fear of deflation begins in China

The continued fall in producer prices and stagnant consumer prices in China raised concerns about the risk of deflation.

While the downward trend in producer prices, which continued for 9 months, continued in July, consumer prices declined for the first time since February 2021.

China’s National Bureau of Statistics (UIB) announced July 2023 data on price increases in the country. In July, the Producer Price Index (PPI) decreased by 4.4 percent and the Consumer Price Index (CPI) decreased by 0.3 percent compared to the same period of the previous year.

DEFLATION CONCERNS RISE

The CPI, which is considered the main indicator of inflation, fell 0.3 percent in July after holding steady in June, raising deflation concerns. The CPI had entered a recessionary course, registering an increase of less than 1 percent since March.

Although the index increased 0.2 percent in July compared to the previous month, there are no signs of a permanent recovery in consumer demand. After a 2.3 percent rise in food prices in June, which declined 1.7 percent in July, non-food inflation, which declined 0.6 percent in June, held steady at July.

The increase in core consumer inflation, which excludes food and energy prices, was 0.4 percent in June and 0.8 percent in July. Analysts point out that the government must take measures to strengthen domestic demand against the risk of “deflation”, which is defined as a decrease in prices for three months.

PPI HAS FALLEN FOR 10 MONTHS

The drop registered in the last quarter of 2022 in the PPI calculated from the ex-factory prices of manufacturing products continued in the first 7 months of this year. The PPI decreased 4.4 percent on an annual basis and 0.2 percent on a monthly basis in July.

The fall in producer prices shows that the manufacturing sector has not recovered from the impact of the Covid-19 epidemic and the ongoing negative external conditions. The government, in its work report presented to the National People’s Assembly on March 5, stated that its goal is to keep inflation around 3 percent this year. (AA)