After a brief boom in the first quarter, consumer and business demand is already waning, and China is going through a unique period of declining prices.
As demand in the second-largest economy in the world declines, both consumer and producer prices in China decreased in July compared to the same month last year. This is an indication of deflation pressure.
The first deflation
According to the National Bureau of Statistics, the consumer price index decreased by 0.3% in July, marking the first decrease since February 2021. In July, producer prices decreased by 4.4%, which was slightly worse than anticipated.
Due to declining business and consumer demand, a protracted real estate market downturn, and muted consumer spending, China is currently going through an unusual period of dropping prices.
- China experiences declining prices and declining consumer and business demand.
- Consumer price index drops 0.3% in July; producer price drops 4.4%.
- Analysts predict gradual monetary policy relaxation due to declining demand and property downturn.
A protracted downturn in the real estate sector, declining export demand, and muted consumer spending are impeding the economy‘s recovery.
According to the International Monetary Fund, China faced deflation in the first half of the year. The People’s Bank of China must now provide monetary stimulus, but there are obstacles in the way, like a lower yuan and high debt levels.
For the remainder of the year, analysts predict a gradual relaxation of monetary policy. Longer-term causes including declining external demand and the property downturn are what are causing the shrinkage.
China’s vast trade in goods will likely cause deflationary pressure to spread to other nations as export prices decline.
