Setback For China's Economy: Deflation Resurfaces, Hindering Recovery

China slid back into deflation in October as the country struggles to pump up growth through domestic demand. China’s National Bureau of Statistics said on Thursday that consumer prices fell 0.2 per cent on-year in October and 0.1 per cent since September. The deepening of factory-gate deflation has now cast doubts about a broad-based economic recovery. Factory deflation continued for the 13th straight month in October.

Grappling with challenges in boosting growth through domestic demand, China slipped back into deflation in October.

According to the China's National Bureau of Statistics, there was a 0.2 per cent year-on-year decrease in consumer prices in October, with a further 0.1 per cent drop from September.

The deepening of factory-gate deflation has now cast doubts about a broad-based economic recovery. Factory deflation continued for the 13th straight month in October.

The headline figure was dragged by a further slump in pork prices, down 30.1 per cent from a decline of 22 per cent in September, due to an oversupply of pigs as well as weak demand. As the most consumed meat in the country, pork plays a major role in China's consumer price index.

The core inflation rate in China fell to 0.6 per cent in October, down from 0.8 per cent in September.

The Producer Price Index (PPI) experienced a year-on-year decrease of 2.6 per cent, compared to a 2.5 per cent reduction in September. These statistics suggest that China might once again fall short of government's full-year headline inflation target of 3 per cent

After dipping into deflation in July, China's consumer prices rebounded in August and stabilised in September.

Bruce Pang, the chief economist at Jones Lang Lasalle, pointed out that "combating persistent disinflation amid weak demand remains a challenge for Chinese policymakers”.

He emphasized the necessity for a strategic combination of policies and supportive actions to avert a downward economic spiral.

However, an official from the statistics bureau asserted in August that China was not experiencing deflation and added that “there will be no deflation in the future”.

A Bloomberg report indicates that China's low inflation rate can be attributed to domestic issues like a downturn in the housing market and low consumer confidence.

Additionally, international factors, including a decrease in global commodity prices and reduced demand for goods made in China, have resulted in a decline in exports, exacerbating the country's economic difficulties.

Deflation leads to a decrease in the prices of goods, services, labor, and capital. While this may seem advantageous for consumers, providing them with greater purchasing power for the same income, it's not entirely positive for the economy.

Various sectors suffer due to the drop in prices. Borrowers also face disadvantages, as they end up repaying amounts that are more than what they initially borrowed.

Additionally, deflation undermines the confidence of investors and can potentially reduce consumption, as consumers may delay purchases in anticipation of further price declines.