2023-08-09 06:20:39
By Le Figaro with AFP
Posted 4 hours ago, Updated 1 hour ago
Prices have been weighed down by sluggish domestic consumption, which is complicating the economic recovery. MARTIN POLLARD / REUTERS
The consumer price index fell by 0.3% over one year in July, after zero inflation a month earlier.
China’s consumer price index slipped into negative territory last month for the first time in more than two years, weighed down by sluggish domestic consumption that complicates the economic recovery. This index, the main gauge of inflation, fell in July by 0.3% over one year, according to the National Bureau of Statistics (BNS). After zero inflation a month earlier, analysts polled by the Bloomberg agency had anticipated this decline in prices but on a more pronounced scale (-0.4%).
Deflation is the opposite of inflation, i.e. falling prices of goods and services. If on paper this phenomenon may seem a good thing for purchasing power, deflation is a threat to the economy. Because instead of spending, consumers are postponing purchases in the hope of more price cuts. Due to a lack of demand, companies are forced to reduce their production, freeze hiring or lay off workers, and agree to new discounts to sell off their stocks, which weighs on their profitability because their costs remain the same. Economists then speak of a harmful spiral.
The main engines of growth are seized up
China experienced a short period of deflation at the end of 2020-early 2021, due to the collapse in the price of pork, the most consumed meat in the country. The previous one dates back to 2009. Many analysts fear a longer period this time, when China’s main growth engines are seized up and youth unemployment is at a record high of over 20%. The real estate crisis, a sector that has long represented a quarter of China’s GDP, is the “principal” reason for this “deflationary shock”estimates the economist Andrew Batson, of the firm Gavekal Dragonomics.
Exports, another key growth lever for China, are also struggling. In July, they experienced their strongest decline in a year (-14.2%), penalized by weak demand abroad, according to official figures published on Tuesday. This situation has a direct impact on tens of thousands of businesses that are now operating in slow motion. Logically, the producer price index contracted again in July (-4.4%) for the tenth consecutive month, according to the SNB. This index, which measures the cost of goods leaving factories and gives an overview of the health of the economy, was already down 5.4% in June. Producer prices in the red mean reduced margins for companies.
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