China slides into deflation; consumer, producer prices contract

The data by NBS comes a day after it was revealed that Beijing's exports fell last month at their fastest pace in more than three years, setting up warning bells

PGurus Newsdesk

August 9, 2023

The data by NBS comes a day after it was revealed that Beijing's exports fell last month at their fastest pace in more than three years, setting up warning bells

China marks its first decline since February 2021

China’s consumer and producer prices both declined for the first time in the last couple of years showing signs of deflation pressure as demand in the world’s second-largest economy weakens.

For the first time since 2021, both consumer and producer prices have contracted in China.

On Wednesday, according to the National Bureau of Statistics (NBS), the consumer price index dropped 0.3 percent in July, compared to the same period last year. Earlier, Bloomberg had anticipated a 0.4 percent decline.

Analysts argue that slowing domestic spending continues to weigh on the country’s post-Covid economic recovery. Analysts also expect the People’s Bank of China (PBOC) to take moderate steps to ease monetary policy for the rest of this year.

Meanwhile, the Producer Price Index, which gauges the change in selling prices received by the domestic producers for their output, fell by 4.4 percent in July, more than the 4.1 percent expected by economists.

Producer prices fell for a 10th consecutive month slightly worse than expected. It’s the first time since November 2020 that both consumer and producer prices registered contractions.

The statistics bureau attributed the decline in consumer prices to the high base of comparison with last year, saying the contraction is likely to be temporary and consumer demand continued to improve in July.

“With the impact of a high base from last year gradually fading, the CPI is likely to rebound gradually,” Dong Lijuan, chief statistician at the NBS, said in rare additional comments to accompany the official data.

While deflation boosts the case for the People’s Bank of China to add monetary stimulus, the central bank is facing several constraints that are making it cautious, including a weaker yuan and elevated debt levels in the economy.

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