2023-07-10 16:13:00
China’s consumer inflation rate held steady stable in June, while its producer prices fell furtherwhich fed the concerns regarding deflation risks and added to speculation regarding a possible economic stimulus.
He consumer price index was unchanged last month compared to the previous year, according to data released Monday by the national statistics office. That was the weakest rate since February 2021, when falling pork costs dragged the index down.
The Core inflation, which excludes volatile food and energy costs, slowed to 0.4% from 0.6%. Producer prices fell 5.4% from a year earlier, the lowest level since December 2015.
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“The risk of deflation is very real,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.
Both indicators add to evidence that the recovery is weakening and deflation concerns hurt confidence. That is likely to lead to more speculation regarding what potential stimulus they might put in place to prop up the economy.
“Today’s data certainly argues for further policy easing, which policymakers are already doing, but only in a measured way,” said Michelle Lam, an economist at Société Générale SA.
Los Producers have already spent months dealing with lower prices for basic products and weak demand at home and abroad. If consumers and businesses continue to avoid spending or investing in the hope that prices will fall, that might lead to a downward price spiral.
Apart from a brief period of deflation in early 2021, China has not experienced prolonged consumer price deflation since 2009, during the global financial crisis.
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Back then, Beijing introduced a 4 trillion yuan stimulus package ($553 billion) focused on infrastructure and industry upgrading. While that plan boosted growth at the time, it also led local governments to borrow more than was legally allowed, sending debt soaring.
The scope of policy to stop the threat of deflation is more limited this time, andn part because of concerns regarding debt risks.
So far, most measures to support the economy have been limited, and last month the central bank cut the policy interest rate only slightly. The Government has also extended tax breaks for buyers of electric cars.
The Chinese authorities have long supported companies through the use of targeted lending tools, such as those aimed at helping the manufacturing and renewable energy sectors. Meanwhile, authorities have often rejected policies intended to provide direct help to consumers, such as subsidies.
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