China slides into deflation in potentially worrying sign for global economy

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Former JPMorgan Chase chief economist Anthony Chan discusses how China's 'suffering' economy impacts global markets on 'Varney & Co.'

While many countries in the post-pandemic era have been grappling with higher consumer prices, China is dealing with the opposite problem as policymakers struggle to revive demand both at home and abroad. 

The National Bureau of Statistics said Wednesday that the consumer price index (CPI) dropped 0.3% year-on-year last month — the first decline since February 2021. 

The producer price index (PPI), meanwhile, declined for a 10th consecutive month, down 4.4% and faster than the forecast 4.1% fall.

Customers select tomatoes at a stall inside a morning market in Beijing on Wednesday. (Reuters / Reuters Photos)

The data comes a day after trade figures showed exports and imports both slumping in July and follows a spate of reports on more debt troubles in China's giant property sector.

The decline has fueled anxiety among China’s major trading partners. Worried consumers and companies are hoarding cash rather than spending or investing it, despite lower interest rates.

Asian shares were on the defensive on Wednesday as the Chinese price data confirmed its economic recovery was losing steam.

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China's anemic prices contrast sharply with the crippling inflation most other major economies have seen, which forced central banks elsewhere to rapidly raise interest rates.

Beijing has set a consumer inflation target of around 3% this year, which would be up from 2% recorded in 2022. For now, authorities are downplaying concerns about deflation.

People walk at a shopping street in Beijing on April 15, 2023. (Reuters/Tingshu