China Grapples with Deflation: Amid global efforts to curb inflation, China faces a different challengefalling prices. The Consumer Price Index (CPI) saw its largest drop since November 2020, down 0.5% in November, surpassing expectations. This decline, exacerbated by a property market slump and subdued consumer confidence, has sparked calls for urgent action from Beijing to stimulate demand and prevent further price declines.
Analysts from Citi highlighted the compounding factors of domestic food price fluctuations, corrections in international oil prices, and weak domestic demand deepening China’s deflationary situation. The impact is transitioning from goods to services, signaling a broader economic concern.
Food prices, particularly pork, were a significant contributor to the CPI decline, plummeting 31.8% in November. Gasoline prices also dipped following a global decrease in oil prices. Additionally, the Producer Price Index (PPI), driven by commodity and raw material prices, dropped for the 14th consecutive month, down 3% in November.
The intensifying deflationary pressure raises doubts about China’s economic recovery. Analysts emphasize the need for decisive policy measures to prevent a detrimental loop between deflation, confidence, and economic activities. The People’s Bank of China has already committed to maintaining an accommodative monetary policy to support the economy.
Recent high-level meetings, including the Politburo gathering and the upcoming Central Economic Work Conference, suggest a commitment to expanding domestic demand and boosting consumer spending. Analysts anticipate imminent cuts to the reserve requirement ratio and policy rates as part of China’s strategy to counter deflationary challenges and bolster economic recovery.
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Our Reader’s Queries
Is China going through deflation?
China’s deflation risk is anticipated to continue until the end of 2023, despite the implementation of recent stimulus measures.
Is deflation coming 2023?
Deflation is the antithesis of inflation. It occurs when prices decrease instead of increase. In the United States, deflation is currently affecting various categories such as food, energy, and household goods, as indicated by consumer price index data.
Which country has the highest deflation?
Afghanistan is the only country that has experienced a greater drop in prices than a year ago, with deflation at 2.8%. China, the world’s second largest economy, is also facing year-on-year deflation, with an inflation rate of -0.3% in July. This trend is concerning for the global economy, as deflation can lead to decreased consumer spending and economic growth.
Has China ever had a Great Depression?
In 1931, the Chinese economy was hit hard by the Great Depression. This was made worse by Japan’s invasion and occupation of Manchuria in the same year. As a result, China’s GDP plummeted to 28.8 billion in 1932.