Prices stabilize in China, in contrast to the rest of the world

Unlike the great economies of the world, China last year registered a fall in prices, which opens the way for a drop in interest rates to support an activity penalized by the real estate crisis.

In the whole of 2021, inflation rose an average of 0.9% (and 1.5% year-on-year in December, compared to 2.3% in November), reported the National Statistics Office (BNS).

This is a much slower rate than the one observed a year earlier (2.4%), a consequence of the practical paralysis of activity in China at the beginning of 2020 after the spread of COVID-19.

On the contrary, in the euro area and in the United States, rampant inflation is a cause for concern.

The president of the United States central bank (Fed), Jerome Powell, said Tuesday that the restoration of price stability is “at the top of the priority list”, Justifying in advance a series of interest rate hikes that will take place this year in the United States.

Although the specter of inflation has made world markets tremble, the trend in China is partly explained by falling food prices.

The decrease is significant in the case of pork (-36.7% in one year), the most consumed by far in the country.

The price of pork had doubled in recent years due to an African swine fever epidemic that decimated farms. But prices fell in 2021 as the disease receded.

The authorities had promoted preventive purchases in early November, calling on the population to stock up on food, in the context of a limited resurgence of the epidemic, accompanied by containment measures.

Stable prices

As for producer prices, inflation also fell last month, increasing by just 10.3% year-on-year, up from 12.9% in November.

The cost of goods index when leaving the factory registered its highest rise in more than 25 years in September (13.5%).

On average, producer prices rose 8.1% in 2021, after falling 1.8% a year earlier.

Production prices “will likely continue to slow down in the coming months”Said analyst Sheana Yue of Capital Economics.

“But the rebound in the epidemic is likely to further disrupt supply chains.”, He warned.

Some 20 million people have been quarantined in three cities in recent weeks following the emergence of COVID-19 cases, including the omicron variant.

China has largely recovered from the initial shock of the pandemic, but sporadic outbreaks of COVID-19 across the country continue to disrupt activity.

The recovery has also been weakened by the rise in commodity prices and the crisis in the real estate sector with the collapse of developer Evergrande, on the verge of bankruptcy.