China’s economy: Deflation, falling prices raises the alarm
China’s economy has fallen into deflation as consumer prices dipped in July for the first time in around two years.
The official consumer price index, an inflation standard, dropped by 0.3% from a year earlier last month.
Why is China’s economy experiencing deflation?
Critics said this increases pressure on the country to restore demand in the planet’s second-largest economy. This follows ailing import and export data, which raised questions regarding the pace of China’s post-pandemic recovery.
The nation is even tackling ballooning local government deficits and housing market challenges. Youth unemployment, standing at a record high, is closely watched as 11.58 million university graduates are anticipated to enter the Chinese job market this year.
Critics said declining prices make it harder for China to lower its deficit – and all the challenges arise, such as a slower growth rate.
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“There is no secret sauce that could be applied to lift inflation,” states Daniel Murray from investment company EFG Asset Management. He says a “simple mix of more government spending and lower taxes alongside easier monetary policy”.
When did prices start falling?
Most developed nations saw a boom in customer spending after pandemic limitations ended. People who had saved funds were unexpectedly able and ready to spend, while businesses struggled to keep up with the demand.
The massive increase in demand for goods that were restricted in supply and increasing energy prices after Russia plagued Ukraine inflated prices.
But this is not what happened in China, where prices did not skyrocket as the economy arose from the world’s tightest coronavirus restrictions. Consumer prices last dropped in February 2021.
They have been on the verge of deflation for months, flatlining before this year due to weak demand. The prices set by China’s manufacturers – factory gate prices – have even been slipping.
