Deflation pressure in China worsens as the economy shrinks

China Beige Book International reports that in the fourth quarter, the deflation pressure in China increased because of the economic downturn. Price growth will likely be moderate even if the economy normalizes at the end of this year.

On Tuesday, a CBBI report was released. It states that for the last three months of 2022, from the middle of 2022, the weakest wage growth and production expenditures were recorded. The growth of prime costs also fell to a low from the end of 2020.

The report states that a short-term deflation has already been revealed, and the growth of sale prices dropped to a low. The negative impact of the coronavirus on retail may cause deflation in the second quarter.

According to the official data, in November, the level of consumer inflation decreased to 1.6% compared to 2.1% last month. Halts caused by the COVID-19 pandemic provoked a drop in demand. Economists polled by Bloomberg expect that this year the level of annual inflation will remain at 2.3% point despite accelerated economic growth.