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The prices of the family basket in the Asian giant are headed for deflation, amid weak internal and external demand that makes the rest of the world nervous about an imminent global economic slowdown.
While the world’s central banks use high interest rates to contain rampant inflation, in China the opposite is true.
The Consumer Price Index remained frozen in June compared to a year ago, with which the second largest economy in the world is approaching deflation, that is, price reduction. In May, the increase had been 0.2% per year, far from the authorities’ objective of keeping average inflation at around 3% during 2023.
The result was driven by a rapid drop in the prices of pork – a key food in the Asian country and with a good weight in the family basket – and marked the slowest inflation rate since February 2021, in the midst of the pandemic. .
With an economy on the verge of deflation, China’s central bank last month cut interest rates and vowed to take measures to promote household consumption. Analysts believe that further reductions are likely in the near term.
This makes his case the exception to the rule, in a world struggling to contain rapidly rising prices, often with higher interest rates inhibiting access to credit. Because?
Greater weakness in the second world economy
It’s not just the consumer that is seeing lower costs month over month in China. In the factories, prices have also been deepening their fall for months and the reason is that the post-pandemic recovery is weaker than expected.
Manufacturers receive less money for their products, as demand is lower, both at home and abroad. That lower consumer spending keeps prices low.
Economists say small rate cuts won’t have a big impact on loan demand as households and businesses repair the damage caused by Covid-19 and pay down debt rather than consume more.
The truth is that, as the world’s factory, the slightest hint of fragility in China’s economy also has an impact on the rest of the planet, from those who provide it with inputs, raw materials and food, to those who import its manufactures and minerals.
With Reuters and EFE
