A dangerous phenomenon in China. Price drops worry analysts
Prices in China fall again, renewing fear of deflation Consumer prices fell for the second time in four months, while prices charged by factories and other large producers have been falling for more than a year.
The money that state-controlled Chinese banks are pumping into building more factories has not helped. The National Bureau of Statistics said on Thursday that consumer prices in China fell 0.2 percent in October from a year earlier. Falling food prices played an important role, in particular a 30 percent drop in pork prices as Chinese farmers began raising more pigs.
Fall in food prices
Changes in food prices can be sudden and do not necessarily lead to deflation or inflation, i.e. changes in the general level of prices in the economy. Excluding food and energy prices – gasoline rose slightly in China last month – consumer prices rose 0.6 percent in October from a year earlier.
Gita Gopinath, first deputy managing director of the International Monetary Fund, told a news conference in Beijing on Tuesday that she believed China would avoid deflation. Weak food and energy prices have lowered broad measures of inflation but may not continue, she added.
“We do not expect a general deflationary trend in China – we expect inflation to be clearly positive in a year’s time,” she said.
Risk of deflation
But falling food prices do not explain the much broader decline in wholesale prices charged by factories and other producers. China’s producer price index fell 2.6 percent in October compared with the same month last year. Looking year over year, it has been declining for 13 months in a row.
Producer prices fell in October from a year earlier for goods ranging from steel and coal to electric cars, although there were signs that electric car prices were stabilizing this fall.
