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China On The Edge Of Consumer Deflation Raising An Urgency For Government Stimulus
The Consumer Inflation Rate (CPI) of China was flat during the month of June, which added which increased the Government’s concerns about the risks of deflation. This further added to the speculation about the potential of stimulus from the Chinese Government.
The stimulus is also important to sustain the country’s recovery post-Covid, which was a bit slow in some cases. The CPI was flat from the last year and even declined in June by 0.2%, as compared to May. As per the National Bureau of Statistics, that was the weakest rate since February 2021.
In addition to that, factory gate prices fell at the fastest rate since 2016, as the demand for manufactured and consumer products fell. Heron Lin, an economist at Moody?s Analytics, claimed,
?China is still growing ? the question is whether it will hit its target?In terms of that recovery, it is still there, but the concern is it?s slowing down.?
Nevertheless, China is still targeting a GDP growth rate of 5% this year, as the state economy is still to come out of the harsh controls to contain Covid-19. Despite that, the recovery of the economy is still flimsy, as the prices of property as well as exports are falling.
Adding to these are the situations where producers are experiencing lower commodity prices, plus weak demand at both home and abroad. This has been happening for months.
The matter is that both consumers and businesses continue to limit their spending and invest in the hopes of getting lower prices. However, such behavior in the economy can result in a price-dropping spiral. This can get worse with time. Hence, stimulus from the Government is the way forward.
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