- China’s economy risks deflation as demand in the nation continues to weaken.
- The producer price index fell 4.6% in May from a year ago, marking the eighth consecutive decline.
- Consumer prices rose, but by an anemic 0.2% year-over-year rate.
China is now facing the risk of deflation as its economy continues to weaken despite earlier expectations of a post-COVID rebound.
Chinese producer prices fell 4.6% in May from a year ago, marking the eighth straight decline and the steepest drop seen since 2016, according to the National Bureau of Statistics. Economists in a Reuters poll expected a 4.3% decline in producer prices.
Consumer prices, meanwhile, rose by an anemic year-over-year rate of 0.2%, lower than economists’ estimates of 0.3% and another sign of weak demand.
That makes deflation — a situation where prices decrease and lead to a contraction in economic activity — a looming threat in China.
After an encouraging bounce in first-quarter GDP growth, more recent economic indicators have signaled a sharp loss in the post-COVID rebound’s momentum.
Real estate and factory activity in China have slowed significantly, and futures for some commodities have plunged as demand slows.
Some experts have lost confidence that China’s economy will be able to recover from its COVID-era restrictions anytime soon. In a recent op-ed, Rockefeller International chair Ruchir Sharma said that something is “rotten” in China’s economy.
Meanwhile, former International Monetary Fund official Desmond Lachman said China’s economy could be headed for a lost decade.
Investors have grown skittish too. International institutional investors have sold a net $148 billion of China’s bonds since early 2022, per a report from the Atlantic Council.
And separate reports have also shown that foreign investors are selling Chinese stocks at a faster pace.
