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China's inflation struggles continue, deflation fears escalate

Published 10/07/2023, 01:19 pm
© Reuters.

Investing.com - The Chinese economy faced further challenges in June, as the country’s consumer inflation hit a standstill and producer prices continued their downward trend. This ongoing softness in demand is fueling apprehensions about potential economic deflation.

In addition, the core inflation rate, which excludes fluctuating food and energy costs, saw its pace slow down from 0.6% to just 0.4%. On another note, factory-gate prices witnessed an even steeper decline with producer prices falling by an alarming 5.4%, surpassing last month's decrease of 4.6% and exceeding expectations for only a 5% fall.

These latest reports concerning China’s inflation rates contribute to growing evidence suggesting that the nation's economic revival might be losing steam.

Anxiety over possible deflation has been steadily increasing recently due largely to low commodity prices and weak domestic and international demand affecting producers adversely – causing them considerable distresses across various sectors. Moreover, if consumers along with businesses persistently withhold spending or investing anticipating lower future costs; it could potentially trigger an unending cycle of price reduction.

Despite mounting pressure on Beijing authorities to intervene more actively for bolstering their struggling economy; so far most strategies have been fairly restrained. A minor cut was made last month by Central Bank in one key policy interest rate while tax incentives were extended towards electric car purchasers by government officials.

Chinese Premier Li Qiang held discussions with several national economists regarding possible financial assistance measures last week. However he stressed that any such policies would remain “targeted, comprehensive and well-coordinated" - supporting widespread belief that any stimulus won't be significantly large-scale. Another constraint being local governments’ high levels of debt- traditionally these bodies have played pivotal roles promoting growth via increased expenditure.

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