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Consumer prices in China are declining as economic growth falters. Consumer price inflation finally slipped into negative territory in July, following 10 consecutive months of decline for producer prices. A prolonged slump in the country’s property market, plunging export demand, and subdued spending by consumers have weighed on the economy following an initial burst of activity in the first quarter, after Beijing scrapped its strict pandemic restrictions.
Beijing is now under more pressure to step up monetary and fiscal support. But the government won’t rush into a decision. Instead, expect officials to determine how much of the current slowdown is attributable to structural factors, such as an aging population, and thus not easily addressed by stimulus measures. China’s central bank will also act cautiously amid a weaker yuan and elevated debt.
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Falling prices in China are good for countries dealing with elevated inflation, most notably the U.S., India, Germany and the Netherlands. In places where inflation is already low — Hong Kong, Japan, and South Korea — import prices could fall, on average.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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