CHINA’S consumer prices contracted last month for the first time in more than two years, official data showed today, as slowing domestic spending weighs on the country’s post-Covid economic recovery.

The Consumer Price Index, the main gauge of inflation, fell 0.3% in July, the National Bureau of Statistics said, having flatlined in June.

Analysts polled by Bloomberg had anticipated a 0.4% decline.

The figures come a day after news that the country’s exports last month fell at their fastest pace in more than three years as global demand for Chinese products wanes. Imports also sank for a ninth straight month owing to weak domestic demand.

While a fall in the price of goods may appear beneficial for purchasing power, deflation poses a threat to the broader economy as consumers tend to postpone purchases in the hopes of further reductions.

A lack of demand then forces companies to reduce production, freeze hiring or lay off workers, and agree to new discounts to sell off their stocks – weighing on profitability even as costs remain the same.

China experienced a short period of deflation at the end of 2020 and early 2021, largely because of a collapse in the price of pork, the most widely consumed meat in the country. – AFP, August 9, 2023.