Consumer prices index in China declines, raising concerns amid slow domestic consumption

The consumer price index in China has entered negative territory for the first time in over two years, driven by sluggish domestic consumption that poses a challenge to the country's economic recovery.

The consumer price index, which serves as a primary measure of inflation, dropped by 0.3% year-on-year in July, according to figures released by the National Bureau of Statistics on Wednesday.

After registering zero inflation the previous month, analysts surveyed by Bloomberg had expected a price retreat, albeit at a slightly larger rate of 0.4%.

Price deflation, or monetary contraction resulting from a decrease in the prices of goods and services, stands in contrast to inflation.

While price decrease may seem advantageous for purchasing power, it poses a risk to the overall economy. Consumers might delay purchases in anticipation of further price drops, rather than spending, hoping to benefit from additional price reductions.

As demand wanes, companies are compelled to reduce production, freeze hiring, or even lay off employees. They also introduce new discounts to clear their inventories, impacting their performance while their costs remain steady.

China experienced a brief period of price deflation at the end of 2020 and the beginning of 2021, largely triggered by a collapse in pork prices, a staple meat in the country.

The last instance of price deflation in China dates back to 2009.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFP