- Shop and factory prices both fell in China last month, according to data released Wednesday.
- That means the country is suffering deflation for the first time in over two years.
- It’s the latest in a long list of concerns for Beijing as China’s post-COVID rebound fizzles out.
China is experiencing deflation for the first time in over two years – yet another sign that Beijing might need to roll out stimulus measures to reboot the country’s stuttering economy.
The consumer price index (CPI), which measures the cost of the average shopping basket, fell 0.3% year-on-year in July, according to data from National Bureau of Statistics.
Meanwhile, factory gate prices as measured by the producer price index plunged 4.4% year-on-year last month to log their tenth decline in a row, per the government agency.
It’s the first time the CPI has fallen since February 2021 and the first time both indices have fallen in tandem since December 2020.
The latest figures fell in-line with forecasters’ expectations and confirm that China is suffering from deflation, which refers to when prices start to fall, rather than rise as is happening in the US.
That’s another economic worry for Beijing, which is also contending with faltering growth, skyrocketing youth unemployment, and massive amounts of debt.
“China is now witnessing the actual cost of goods both in stores and at the factory gate falling,” Hargreaves Lansdown’s head of equity funds Steve Clayton said. “It is indicative of a significant slowdown in the Chinese economy, which is beset by high levels of indebtedness.”
The data released Wednesday is likely to lead to more calls for fiscal stimulus, according to analysts.
Policymakers promised to boost the economy “with precision and force” last month but are yet to roll out so-called “big bang” measures that could spark a full-blown revival.
“With CPI and the PPI both falling simultaneously for the first time since 2020, it confirms economy-wide deflation which will increase the drumbeat for more stimulus,” Deutsche Bank research strategist Jim Reid said Wednesday.
