Strategic Briefing: Deflation Risk in China

Price Data Suggest Specter of Deflation in China
The New York Times | July 9
Prices are tumbling across the Chinese economy, according to government data released on Monday, as a flood of goods pouring out of the nation’s vast and ever-expanding factory cities exceeds anemic demand from Chinese households and businesses.

China Official: 2012 CPI To Below 4%, Small Risk Deflation
Market News International | July 9
China’s consumer price inflation will stay below 4% for 2012, a senior official with the powerful National Development and Reform Commission told state television, playing down worries about deflation. Headline consumer inflation rose at the slowest pace since January 2010 at 2.2% y/y in June, lower than the expected 2.3% in a median survey by MNI. CPI rose 3.3% y/y in the first half of the year. Zhou Wangjun, deputy chief of the NDRC’s price department, said the CPI, though falling fast in June, has not exceeded expectations.

China’s Stocks Drop Most in Month on Economy, Deflation Concern
Bloomberg BusinessWeek | July 9
China’s benchmark price for power-station coal fell for a ninth week, the longest period of losses since at least 2008, as slowing economic growth and increased use of hydropower crimped electricity demand.

Chinese inflation slows to lowest in two years
The Telegraph | July 9
The inflation figures were the latest in a series of data in recent weeks showing China’s economy is slowing, and analysts said they would allow the government to act more aggressively in trying to revive growth. “The softening CPI will give the central bank more room to stabilise the economy,” Tang Jianwei, a Shanghai-based economist with the Bank of Communications, told AFP. “Before the central bank had to balance between inflationary pressures and softening demand.”

China inflation cools, with more easing likely
MarketWatch | July 9
“While an economy-wide generalized deflation is yet to be seen, the deflationary spiral looks to have started in some industrial sectors, attesting to considerable stress with the economy,” IHS Global Insight economist Xianfang Ren said in Beijing in a note following the data release.

China inflation signals demand falling as prices ease
Reuters | July 9
China’s annual consumer inflation cooled to a 29-month low of 2.2 percent in June versus May’s 3.0 percent, data from the National Bureau of Statistics showed, with a month-on-month CPI fall of 0.6 percent twice the rate of decline expected. Producer prices eased even faster, falling 0.7 percent on the month and 2.1 percent on the year, marking the fourth straight month of outright deflation in factory gate prices and pushing the PPI to a 31-month trough. “The PPI figure last month further confirmed the economy continued to cool down, which means the industrial output and other economic activity data could not be upbeat,” said Wang Jin, a Shanghai-based analyst with Guotai Junan Securities. China last suffered a bout of deflation between February and October of 2009. By the end of 2009, consumer prices had fallen 0.7 percent on the year.

This post originally appeared at The Capital Spectator and is posted with permission.