China is experiencing weak demand across the economy and is mired in deflation. Given the ongoing housing market downturn, difficult labor market conditions and increased debt risks, consumers in the world’s second-largest economy have cut back on spending.
In December, consumer prices fell for the third month in a row, by 0.3 percent compared to the same period last year, the statistics agency announced on Friday. In November there was an even sharper decline of 0.5 percent. In 2023, prices rose by an average of 0.2 percent, the slowest pace since 2009. This clearly missed the official target of around three percent.
Pork prices in particular fell sharply in December. They fell by 26.1 percent compared to the same month last year. In contrast, many service providers implemented noticeable price increases. For example, hotel stays increased by 5.5 percent.
Major interest rate cut expected
Given the weak economy and falling prices, experts assume that the central bank will take action. Some economists expect she will cut interest rates next week and pump more money into the economy.
Dangerous downward spiral
The dilemma for the central bank is that interest rate cuts, intended to stimulate the economy, could accelerate the price decline. The situation seems economically dangerous: if consumers hold back consumption in the expectation that prices will fall further, the entire economy will be drawn into a vortex of falling prices, falling wages and reluctance to invest.
Source: Krone
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