China’s Consumer Prices Hold Steady in July Amid Deflation Concerns
China’s consumer prices remained stable in July, official figures released Saturday indicate, offering a brief reprieve for the world’s second-largest economy amid persistent deflationary pressures and weak domestic demand.
The National Bureau of Statistics reported that the consumer price index (CPI), a primary gauge of inflation, showed no change compared to the same month last year. This outcome surpassed economists’ expectations, who had anticipated a 0.1 percent year-on-year decline, according to a Bloomberg survey.
Despite the overall stability, prices in rural regions dropped by 0.3 percent, while consumer goods prices fell 0.4 percent year-on-year. Although deflation can benefit consumers through lower prices, it poses risks to economic growth as households may delay spending in anticipation of further price reductions.
Long-standing challenges, including a protracted real estate downturn and elevated youth unemployment, continue to dampen consumer confidence. These issues have been exacerbated by ongoing trade tensions between China and the United States, which have intensified economic uncertainty.
After four consecutive months of declining prices, June saw a modest rebound. Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, noted that “the downward trend of car and phone prices improved, which contributed to the rise of core CPI.” However, Zhang cautioned that “it remains uncertain whether deflation has truly ended in China,” highlighting that “the property sector has not stabilized, and the economy is still more reliant on external demand than domestic consumption.”
Adding to concerns, China’s producer price index (PPI), which measures factory gate prices, fell 3.6 percent year-on-year in July, mirroring June’s decline. This nearly three-year trend of falling wholesale prices compresses profit margins for manufacturers engaged in intense price competition, a situation the government is attempting to address.
On the trade front, China experienced a rebound in foreign trade in July compared to the previous year. However, the temporary tariff truce between Beijing and Washington is set to expire this Tuesday, raising the possibility of U.S. tariffs being reinstated at higher rates.
