While central banks in developed countries wrestle with stubbornly high inflation, China has the opposite problem — the world’s second-largest economy is flirting with deflation.
Beijing revealed this week that consumer prices were flat in June compared with a year earlier while producer prices plunged at the fastest pace since 2016. That compares with a US inflation rate that hit 9.1 per cent in June last year and was at 3 per cent last month despite multiple interest rate increases by the Federal Reserve. Even Japan, once almost a byword for deflation, boasted a relatively racy inflation figure of 3.2 per cent in May.
Developed economies were hit particularly hard by soaring energy and food prices as Russia launched its full-scale invasion of Ukraine last year, but price controls on energy in China shielded it from the worst of those fluctuations. Instead, the country is at risk of deflation because of low consumer demand and private investment as the economy emerges from draconian zero-Covid controls, economists said.