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China’s inflation deterioration pressures government

China’s inflation deterioration pressures government

The inflation data announced by China on Thursday was greatly disappointing at the level of both consumers and producers, which increased the pressure on the Chinese government to provide more support to the second largest economy in the world.

The decline in inflation rates from the point of view of consumers during the month of September witnessed a significant deceleration to record its weakest level in 19 months, increasing by 1.7% from a previous rise of 2.4%, and expectations were for a 1.9% soar.

As for the producer price index, it fell for an eighth consecutive month on an annual basis, by 2.1%, from a previous decline of 2.0%, while expectations were for a decrease of 1.9%.

The world's second largest economy has seen a steady recovery after being hit hard by the coronavirus in the first quarter.  But the continuing decline in producer prices, seen as a gauge of industrial demand, could renew concerns about deflation and prompt authorities to provide more support.

Weak industrial demand in China is mainly behind the continued decline in the producer price index, despite the improvement in performance in general, and we may not see positive data for this indicator during this year.

Expectations are increasing that the recovery in the economic performance in the fourth quarter will not be strong enough to support the Chinese economy, especially since the second wave of the Corona pandemic, which has already begun to hit the European region, would affect global demand significantly and thereby negatively impact the Chinese economy.

China's GDP recorded growth of 3.2% year-on-year in the second quarter, and the data during the third quarter witnessed recovery, supported by government incentives, but the fourth quarter is still unstable. 

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