China slips into deflation as prices fall for first time since early 2021

China’s consumer prices have fallen for the first time in more than two years as slowing spending hampers the economy’s post-pandemic recovery.

The Chinese economy slipped into deflation as the Consumer Price Index (CPI) declined by 0.3 percent in July after remaining flat the previous month, figures from the National Bureau of Statistics showed on Wednesday.

The price contraction is the latest sign of a darkening outlook for the world’s second-largest economy after exports last month fell by 14.5 percent, the third straight decline and steepest drop in three years.

China briefly experienced deflation in late 2020 and early 2021, when pork prices collapsed across the country.

Deflation is generally viewed negatively by economists as lower prices typically lead to lower consumer spending and reduced production, in turn causing layoffs and salary cuts.

China’s economy has slowed amid weakening demand at home and overseas after a swift rebound from COVID-19 and tough pandemic curbs at the start of the year.

Beijing has announced a raft of policy measures to prop up the economy, including greater support for private enterprise, with more policies expected to be rolled out in the coming weeks.

“The economic momentum continues to weaken due to lacklustre domestic demand,” Zhiwei Zhang, the chief economist at Pinpoint Asset Management in Hong Kong, told the Reuters news agency.

“It is not clear at this stage if the policies announced recently can turn around the economic momentum soon. The CPI deflation may put more pressure on the government to consider additional fiscal stimulus to mitigate the challenge.”