China emerges from deflation after a price spike in August

The consumer price index in China It rose in August and allowed the world’s second largest economy to emerge from deflation despite weak domestic demand that complicates the recovery.

This index, the main indicator of inflation, stood at +0.1% year-on-year in August, the National Statistics Office (ONE) said on Saturday. Analysts questioned by Bloomberg anticipated a price increase of 0.2% year-on-year in August.

China briefly fell into deflation in July (-0.3% year-on-year) for the first time in more than two years. Deflation is the opposite of inflation and involves a decrease in the prices of goods and services.

Although this price reduction may seem beneficial for purchasing power, in the long term it is a macroeconomic threat because consumers tend to delay purchases waiting for greater prices and companies are forced to cut production.

China experienced a brief period of deflation in late 2020 and early 2021, mainly due to the collapse in the price of pork, the most consumed meat in the country. Before, the last period of deflation was in 2009.

China still on the radar of stagnation

Despite the rebound in August, many analysts do not rule out that China will fall into deflation again due to the stagnation of its economic growth engines such as the real estate sector and foreign trade.

On the other hand, industrial inflation contracted 3% in August, marking the eleventh consecutive month of decline, according to official data.

The producer price index measures the cost of goods leaving factories and provides a snapshot of the health of the economy. A falling production price implies less profit margin for companies.

In local markets, the yuan moved away from a 16-year low hit on Friday after the central bank on Monday set the daily midpoint guidance with the strongest bias on record, indicating growing unease with recent weakness in The currency.