China: As demand in the second-largest economy in the world declines, both consumer and producer prices in China decreased in July compared to the same month last year. This is an indication of deflation pressure. The consumer price index experienced its first reduction since February 2021 last month, falling 0.3% from a year earlier, according to the National Bureau of Statistics. Bloomberg questioned economists who projected a 0.4% drop in prices.
China’s Producer Prices Decline for Tenth Consecutive Month
Producer prices decreased for the tenth straight month in July, declining 4.4% from a year earlier, which was somewhat worse than anticipated. Since November 2020, neither the consumer nor producer price indexes have decreased. After an initial surge in demand in the first quarter following the lifting of pandemic restrictions, China is currently going through a unique period of dropping prices as consumer and business demand slows. The economy’s recovery is being hampered by a protracted real estate market downturn, declining export demand, and muted consumer spending.
Central Bank Cautious Amid Monetary Stimulus Debate
China experienced deflation in the first half of the year, according to the gross domestic product deflator, a gauge of prices across the entire economy. Deflation is described as “a sustained decline in an aggregate measure of prices,” such as the CPI or the GDP deflator, by the International Monetary Fund. Although deflation strengthens the case for the People’s Bank of China to provide monetary stimulus, the central bank is being cautious due to a number of issues, including a lower yuan and high levels of economic debt. For the remainder of this year, analysts anticipate the PBOC will loosen monetary policy in little steps. Contrary to the brief decline in consumer prices that occurred in late 2020 and early 2021 as a result of lowering pork prices, this recession is the result of more long-term issues, such as declining foreign demand and the real estate collapse. China’s huge commerce in goods will allow it to exert deflationary pressure on other nations as export prices decline.
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