China’s economy slips into deflation as recovery from pandemic continues to falter

08/08/2023 08:15 in News

China’s already “tortuous” recovery from the Covid pandemic continued to stall today as fresh data indicated that domestic demand remained depressed.

Figures out this morning showed that the world’s second largest economy slid into deflation in July for the first time since February 2021, with the consumer price index (CPI) falling 0.3 per cent year-on-year. CPI had been hovering around zero for months before.

Deflation refers to falling prices for goods and services. It can be hugely damaging for an economy as it encourages consumers to delay spending, putting further downward pressure on prices.

Innes McFee, managing director at Oxford Economics said the current bout of deflation is “altogether more worrying than previous Chinese deflationary episodes” for the government.

She highlighted weak consumer sentiment and a deteriorating property market as signs that deflation could prove more persistent than previous episodes, which were driven by excess supply.

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