China Deflation Fears
Aug. 11, 2023
Weekly Highlight 8.11.2023 – China Deflation Fears
The latest inflation data released over night showed China’s consumer and producer prices contracting for the first time since 2020. Slowing demand at home and abroad, combined with a real estate market that continues to struggle has caused suppliers to rapidly cut prices. Deflation would have the potential to slow the Chinese economy even further, prompting calls for additional stimulus measures.
Contrary to the US and EU which have been trying to quell inflationary pressures, China faces concern of stagnating growth and falling prices (Figure 1). If there is an extension of falling producer prices (Figure 2), this could eat into corporate profits, sap consumer spending, and push the unemployment rate up. This would have a global impact in that the prices of some products consumed globally could fall, however the world could be deprived of important Chinese demand for raw materials and consumer goods. In such a prolonged scenario, a call could be made that net margins at refineries taper off, resulting in lower crude demand, especially if input costs continue to be supported by supply-side constraints from OPEC+.
Figure 1: Annual % Change in Consumer Prices Figure 2: China PMI and Producer Prices
Source: WSJ, FRED, National Bureau of Statistics of China
Share
Comments
You need to login to comment.
