China Inflation Cools Further as Deflation Fears Rise

China Inflation Cools Further as Deflation Fears Rise

China’s consumer inflation continued its downward trend in June, rising just 0.2% year-on-year, according to data released Wednesday. That was lower than analysts’ expectations and adds to concerns about potential deflation in the world’s second-largest economy.

A Reuters poll had forecast a 0.4% rise in consumer prices in June. Meanwhile, the producer price index, which tracks factory-gate inflation, fell 0.8% from a year earlier, in line with forecasts.

This subdued inflation is in stark contrast to the situation in many other countries struggling with rising prices. Weak domestic demand in China appears to be the main culprit.

“The risk of deflation has not disappeared,” noted Zhiwei Zhang, chief economist at Pinpoint Asset Management, who pointed to sluggish domestic consumption as a key factor.

Zhang also suggested that China may rely heavily on exports to boost growth in the first half of 2024. The country’s official trade data for June is due to be released on Friday, which could shed some light on this.

One bright spot was the core consumer price index, which excludes volatile food and energy prices. This index saw a slightly slower, but still positive, year-over-year increase of 0.6% in June compared with the first half of the year.