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Chinese economy slips into deflation as recovery falters and demand slows | China

Chinese consumer prices slipped into deflation last month for the first time in more than two years, official data showed, as slowing domestic spending weighed on the country’s post-Covid economic recovery.

The Consumer Price Index, the main gauge of inflation, fell 0.3 points in July, the National Bureau of Statistics said, having flatlined in June. A survey of analysts had anticipated a 0.4 percent year-on-year decline.

July’s data is China’s first negative inflation reading since early 2021, when prices were weaker as the Covid-19 pandemic hit demand, and pork prices fell.

The figures come a day after data was released showing the country’s imports and exports both fell more sharply than expected in July, as global demand for Chinese products wanes.

Chinese retailers have been hit by a slowdown in sales. This means retailers who stocked up on goods expecting a surge in demand after pandemic restrictions were lifted are now under pressure to cut prices.

The cost of cars has also fallen, after price cuts from Tesla triggered a price war, with other brands lowering their prices too.

China’s factories are already charging less for their goods, as they react to weakening demand after commodity prices fell. China’s producer price inflation, which tracks prices at the factory gate, was -5.4% year-on-year in June.

Authorities have downplayed concerns about deflation. Liu Guoqiang, deputy governor of the central bank, last month said there would be no deflationary risks in China in the second half of the year, but noted the economy needs time to return to normal after the pandemic.

The government has set a consumer inflation target of around 3% this year.

Despite recent policy stimulus, consumers and manufacturers remained cautious amid the still-weak housing market and high youth unemployment, and a diminishing appetite among foreign firms to invest in China.

Falling prices may sound attractive to consumers in the west, where inflation hit its highest levels in decades last year. In the UK, consumer prices were 7.9% higher than a year ago in June, as households suffered a long run of falling real incomes.

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But deflation can hurt economic growth, as consumers will delay purchasing products if they think they will be cheaper in future. This leads companies to cut back on investment as their profits shrink and can end up with a freeze on hiring or the laying off workers.

Chinese authorities have reportedly put pressure on high-profile local economists to avoid discussing negative trends in the economy, including deflation, the Financial Times reported.

Jim Reid, strategist at Deutsche Bank, said the trade data highlighted that the Chinese economy is being “dragged lower by weakness in global demand and a domestic slowdown”.

Reuters contributed to this report

Summarize this content to 100 words Chinese consumer prices slipped into deflation last month for the first time in more than two years, official data showed, as slowing domestic spending weighed on the country’s post-Covid economic recovery.The Consumer Price Index, the main gauge of inflation, fell 0.3 points in July, the National Bureau of Statistics said, having flatlined in June. A survey of analysts had anticipated a 0.4 percent year-on-year decline.July’s data is China’s first negative inflation reading since early 2021, when prices were weaker as the Covid-19 pandemic hit demand, and pork prices fell.The figures come a day after data was released showing the country’s imports and exports both fell more sharply than expected in July, as global demand for Chinese products wanes.Chinese retailers have been hit by a slowdown in sales. This means retailers who stocked up on goods expecting a surge in demand after pandemic restrictions were lifted are now under pressure to cut prices.The cost of cars has also fallen, after price cuts from Tesla triggered a price war, with other brands lowering their prices too.China’s factories are already charging less for their goods, as they react to weakening demand after commodity prices fell. China’s producer price inflation, which tracks prices at the factory gate, was -5.4% year-on-year in June.Authorities have downplayed concerns about deflation. Liu Guoqiang, deputy governor of the central bank, last month said there would be no deflationary risks in China in the second half of the year, but noted the economy needs time to return to normal after the pandemic.The government has set a consumer inflation target of around 3% this year.Despite recent policy stimulus, consumers and manufacturers remained cautious amid the still-weak housing market and high youth unemployment, and a diminishing appetite among foreign firms to invest in China.Falling prices may sound attractive to consumers in the west, where inflation hit its highest levels in decades last year. In the UK, consumer prices were 7.9% higher than a year ago in June, as households suffered a long run of falling real incomes.skip past newsletter promotionSign up to Business TodayGet set for the working day – we’ll point you to all the business news and analysis you need every morning”,”newsletterId”:”business-today”,”successDescription”:”We’ll send you Business Today every weekday”}” clientOnly>Privacy Notice: Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.after newsletter promotionBut deflation can hurt economic growth, as consumers will delay purchasing products if they think they will be cheaper in future. This leads companies to cut back on investment as their profits shrink and can end up with a freeze on hiring or the laying off workers.Chinese authorities have reportedly put pressure on high-profile local economists to avoid discussing negative trends in the economy, including deflation, the Financial Times reported.Jim Reid, strategist at Deutsche Bank, said the trade data highlighted that the Chinese economy is being “dragged lower by weakness in global demand and a domestic slowdown”.Reuters contributed to this report
https://www.theguardian.com/world/2023/aug/08/chinese-economy-expected-to-have-slipped-into-deflation-as-recovery-falters Chinese economy slips into deflation as recovery falters and demand slows | China

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