China’s deflation of consumer prices in July, with slowing economy leading to factory gate prices extended their declines, as China’s economic growth slows with struggle to revive demand and pressure mounted for authorities to release more direct stimulus.
China’s consumer prices deflates
China swings into deflation as recovery falters with consumer price index in China for the month dropped 0.3% year-on-year, the National Bureau of Statistics (NBS) said on Wednesday, a slightly slower fall than the median estimate for a 0.4% decrease as per a poll depicting China’s slowing economy.
The producer price index (PPI) fell for a 10th consecutive month, down 4.4% from a year earlier after a 5.4% drop the previous month. That compared with a forecast for a 4.1% fall.
China’s slowing economy
China’s economic recovery slowed after a brisk start in the first quarter, as demand at home and abroad weakened. Authorities have rolled out a flurry of policy measures to support the economy, with more steps expected.
“Both CPI and PPI in year-on-year terms fell into negative territory and confirmed economic deflation,” said Xing Zhaopeng, senior China strategist at ANZ.
China’s economic growth slows and as Xing expected the CPI to hover around 0 in the second half of the year, saying “it would be hard to manoeuvre monetary policy. The Politburo meeting called for a stable yuan exchange rate, which would conflict with monetary easing.”
China’s stock update
Asian shares were on the defensive on Wednesday as the Chinese price data confirmed China’s economic recovery economy was losing steam.
China’s stock bluechip CSI300 Index (.CSI300) and the Shanghai Composite Index (.SSEC) both declined after the figures.
“Markets needs to see more actionable support measures from the Chinese authorities to stay upbeat,” said Frances Cheung, rates strategist at OCBC Bank in Singapore.
“While there is room for some mild monetary policy easing, the onus is on the fiscal side. Otherwise, economic data showing some growth improvement is required, which is not coming through yet.”
China’s deflation same as Japan
The figures come amid mounting fears of China’s deflation and it entering an era of much slower economic growth akin to the period of Japan’s “lost decades” since the 1990s, which saw consumer prices and wages stagnate for a generation.
China consumer prices contrast sharply with the crippling inflation most other major economies have seen, which forced central banks elsewhere to rapidly raise interest rates.
Signs of global inflation
However, there are also signs global inflation may be peaking and in some cases reversing with prices in Brazil sharply slowing, raising the sudden prospects of an interest rate cut in the world’s 10th largest economy.
Downplaying China’s deflation
Chinese authorities have downplayed concerns about China’s deflation. Liu Guoqiang, deputy governor of the central bank, last month said there would be no deflationary risks in China in the second half of the year, but noted the economy needs time to return to normal after the pandemic.
The NBS said separate statement CPI was expected to rebound as the economy recovers and the relationship between supply and demand improves.
The government has set a consumer inflation target of around 3% this year, which be up from 2% recorded in 2022.
Cautious investors due to China deflation
Despite recent policy stimulus, consumers and manufacturers remained cautious amid the still-weak housing market and high youth unemployment, and a diminishing appetite among foreign firms to invest in China.
Investors have been anxiously waiting for policymakers to inject stimulus measures after the powerful Politburo meeting last month, with the stock market mostly underwhelmed by the lack of concrete actions.
