The second-largest economy in the world experienced deflation in July, when consumer prices fell 0.3% from a year earlier.
China’s deflation coincides with substantial youth unemployment—more than one in five of those between the ages of 16 and 24 are unemployed. The country’s economic activity peaked earlier than anticipated once the viral limitations were lifted, which prompted Chinese policymakers to make efforts to support consumer and industry activity.
Deflation is a decline in overall price levels, and is the opposite of inflation, when prices rise over a period of time.
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On the surface, deflation may appear to be a positive trend. After all, if prices are falling, your paycheck will go further and, at the very least, you’ll have greater purchasing power.
Secondly, deflation is bad for individuals or organisations that are in debt due to mortgages or other loans. This is due to the fact that, despite declining prices, the value of debt remains constant, placing pressure on individuals and organisations to reduce expenditure in order to pay off their debt.
China’s deflation appears to be coming from two sectors — transportation and food, with pork prices down 26% year over year.
In July, the world’s second-largest economy officially slipped into deflation for the first time in two years as consumer prices fell 0.3 percent. Prices had already flatlined for much of 2023, bucking the global trend of spiking prices for everything from energy to food.
However, deflation can occur for various reasons, such as reduced consumer demand, oversupply of goods, technological advancements that lower production costs, or tight monetary policies by central banks. In China’s case, reduced consumer demand and economic slowdown are the reasons.
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