China Returns to the Brink of Deflation; Exports are also Falling

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Consumer prices in China unexpectedly remained unchanged in September compared to a year ago. With an inflation rate of zero percent, the second-largest economy has returned to the brink of deflation, indicating that the country’s economic recovery is still fragile and needs additional support.

 

Economists had expected consumer prices to rise by 0.2 percent in September.

The levelling off of inflation follows a slight increase of 0.1 percent in August. The Asian country seemed to have emerged from a short period of so-called deflation after just one month. In July, the country slipped into deflation as consumer prices fell for the first time in over two years. Deflation, or the reverse of inflation, is often a bad sign for economic growth. Consumers tend to hoard their money because they can buy more later.

The Chinese statistics agency also released new data on producer prices. The prices manufacturers ask for their goods fell by 2.5 percent last month, after a 3 percent decline in August. Economists had expected a price drop of 2.4 percent.

China has been struggling to recover its economy for some time. The country is dealing with declining exports and a major crisis in the real estate sector. There, companies are in danger of collapsing under their large debt burden. Confidence among consumers is also low, and they spend less.

It was also announced on Friday that Chinese exports have fallen again. Exports decreased by 6.2 percent in September. That was less than the 8 percent decline that economists had expected. Chinese exports have been declining on an annual basis since May this year. Imports also fell by 6.2 percent last month. That was slightly more than the 6 percent decline that economists had expected.

The International Monetary Fund recently lowered its growth forecast for China for this year from 5.2 percent to 5 percent and for next year from 4.5 percent to 4.2 percent. According to the IMF, the economy is losing momentum due to the decline in real estate investment and house prices. Last year, China experienced the smallest economic growth in decades at 3 percent. This was mainly due to the strict lockdowns in the country.

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