China consumer prices fall, renewing deflation fears | ET REALITY

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Prices are falling again in China after a two-month respite, and households and businesses are cautious about spending even as state-controlled banks pump money into building more factories.

Falling prices could put China on the brink of a pernicious economic condition called deflation, in which businesses and workers find they receive less money for their goods or their work, while their debts remain as heavy as ever.

In the United States, by contrast, inflation has fallen substantially, although consumer prices remain higher than before the pandemic. Europe is still fighting inflation.

Consumer prices in China fell 0.2 percent in October compared with a year earlier, the National Bureau of Statistics said on Thursday. Falling food prices played a major role, particularly a 30 percent drop in pork prices as Chinese farmers began raising more pigs.

Changes in food prices can be abrupt and do not necessarily lead to deflation or inflation, which are changes in the overall price level of an economy. Excluding food and energy prices (gasoline became slightly more expensive in China last month), consumer prices in October rose 0.6 percent from a year earlier, the statistics agency said.

Gita Gopinath, first deputy managing director of the International Monetary Fund, said at a news conference in Beijing on Tuesday that she thought China would be able to avoid deflation. Weak food and energy prices have reduced overall measures of inflation, but may not persist, she said.

“We don’t expect to see a general trend of deflation in China; we expect that, within a year, inflation will be squarely in positive territory,” he said.

But the drop in food prices does not explain a much broader drop in wholesale prices charged by factories and other producers. China’s producer price index fell 2.6 percent in October compared with the same month last year; On that year-over-year basis, it has been down for 13 consecutive months.

Producer prices were down in October from a year earlier for goods ranging from steel and coal to electric cars, although there have been signs of a stabilization in electric car prices this fall.

Stocks rose in early trading Thursday in Shanghai and Shenzhen, even though the drop in consumer prices was slightly deeper than the 0.1 percent drop economists had expected. Consumer prices were stable in September from a year earlier, rising 0.1 percent in August and falling 0.3 percent in July.

Economic weakness was visible recently on a weekday in Weifang, a city in Shandong province in east-central China. A street of several blocks of stores selling building materials such as paint, plaster and flooring was completely emptied of customers shortly before lunchtime.

Liu Xinjiang, owner of a small shop that equips apartments with new or renovated stoves and kitchen cabinets, said prices of steel and cement had fallen sharply, while prices of home decoration supplies also fell broadly. Prices for apartments in the street-facing towers have dropped 30 to 40 percent in recent years, he said, but there are still no buyers and therefore no one spending money inside the towers. kitchens.

“Apartments can’t be sold in China now,” Mr. Liu said.

Falling prices in China are a reflection of weak demand and oversupply of a variety of goods. Apartments are the main asset of Chinese families, accounting for between three-fifths and four-fifths of household wealth. Falling apartment prices have made many people reluctant to spend money.

Existing home prices in 100 cities in China have fallen on average nearly 18 percent since August 2021, according to the Beike Research Institute, a research firm in Tianjin.

China’s strict pandemic restrictions also appear to have had a lasting effect on consumers’ and businesses’ willingness to spend, even though China abruptly abandoned those measures 11 months ago. Consumer confidence plummeted across the country during Shanghai’s two-month Covid lockdown in the spring of last year, falling much further than during the global financial crisis of 2008 and 2009.

When consumer confidence surveys failed to show a recovery last spring, the National Statistics Office temporarily stopped publishing the data. But now it’s back at it, and data shows that after a small rebound in the first three months of this year after Covid control measures were lifted, consumer confidence has fallen to levels almost as low as at end of the Shanghai blockade.

Li you contributed to the research.

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