Fighting deflation: China's economic challenges are growing!

Fighting deflation: China's economic challenges are growing!

Economic events in China are once again a topic of discussion. Loud Boursorama In September, prices for consumers fell by 0.3% compared to the previous year, a little more than expected by experts at the Financial Times (-0.2%). That doesn't exactly sound like an economic high, especially since the previously observed price reduction was even more significant in August (-0.4%).

However, there was a small ray of hope when viewed monthly: from August to September prices rose by 0.1%. Despite this minimal recovery, China continues to face enormous economic challenges, including high youth unemployment and subdued consumer spending that has been observed since the pandemic. The protracted crisis in the real estate sector is contributing to weak consumer spending, which is having a major impact on the everyday lives of Chinese people.

Price development and production

Another big chunk in the balance sheet is the producer price index (PPI), which fell by 2.3% in September compared to the previous year, but less sharply than in August (-2.9%). This PPI, which remains in negative territory, signals that profit margins for companies are under pressure. In view of the current situation, the International Monetary Fund (IMF) has already called for a rethink in Chinese economic policy in order to increase domestic consumption through targeted fiscal measures.

However, there is a small glimmer of hope: the trend towards deflation in consumer prices has eased somewhat, in particular due to a decline in the fall in fuel prices. Putting the forecasts together, the PPI is expected to remain in negative territory in the coming months and probably into next year.

Future developments

Of crucial importance will be the upcoming meeting of the Communist Party Committee, which will take place from October 20th to 23rd. Guidelines for the economic direction of the next five years are discussed here. It remains to be seen what measures will be announced and whether they can noticeably improve the economic climate.

To put it into perspective: The inflation rate in China is traditionally recorded by the consumer price index (CPI), which shows the price development of products and services. Loud INSEA The CPI is an essential indicator for measuring general price increases and is based on a basket of goods that is updated annually.

This fact also underlines the complexity of the economic situation in China. Historical data shows that inflation rates in China have been very volatile over the past few decades. The latest review shows that the country has experienced numerous ups and downs since 1981, as the comprehensive data from Statista show.

Overall, China faces the challenge of getting out of the “deflation swamp” and promoting sustainable economic growth. It remains to be seen whether the party's upcoming resolutions will provide the desired impetus here.