China in Deflation

China is going into deflation. According to the National Bureau of Statistics, consumer prices in July fell by 0.3% year-on-year.

For Beijing, this is the first occurrence of deflation since the beginning of 2021 – a fact that appears at the moment when the world’s second largest economy is taking steps to revive demand and when pressure is mounting for direct economy stimulus measures.

After a dynamic first quarter of 2023, China’s post-pandemic recovery is slowing down, and the reasons should be looked for in weak domestic demand and equally sluggish external demand, as also evidenced by latest import and export data. The result is a fall in prices, aimed at emptying the warehouses of the “world production.”

According to some analysts, one of the main reasons for this situation lies in the generally acknowledged crisis in the real estate market, which accounts for a quarter of China’s GDP and contributes to a deflationary shock, while the rest of the developed world, on the contrary, is combatting high inflation.

Meanwhile, the producer price index also keeps falling for the tenth month in a row, dropping 4.4% after a drop of 5.4% in June.