Chinese Inflation Figures Raise Debate Over Beijing Stimulus

China’s Consumer Price index has continued to decelerate and in come flat on an annualised basis, putting the country on the verge of deflationary territory. This marked the lowest print since February 2021 as the cost of transport saw a heavy decline. Meanwhile, when looking at the index on a month-on-month basis, consumer prices fell by 20bps, representative of the fifth consecutive deflationary print. China’s Producer Price Index also came in at -5.4%, accelerating from a -4.6% print last month as commodity prices fall while domestic and international demand slips. This marked the greatest fall in prices since the end of 2015, as investors consider the impact of faltering demand.

In the latest signal that the world’s second largest economy may be slowing, analysists are weighing up whether this data release may act as a further impetus for Beijing to consider implementing a fiscal stimulus package. This comes as the CCP aims to achieve 5% growth this

year, a figure which despite being relatively low in comparison with historic rates, will nonetheless be a challenge this year as the country comes out of Covid lockdowns and navigates through a delicate property market.

According to Bloomberg, “both gauges add to evidence that the recovery is weakening, with concerns about deflation weighing on confidence. That’s likely to spur more speculation about what potential stimulus may be in the cards to shore up the economy”.

Concerns over China’s mid to long term economic performance are continuing to mount with many economists considering the impact of country’s debt-ridden municipal governments, high levels of colleague graduate unemployment (currently around 20%), a fragile housing market and demographic pressures.