China’s GDP deflator – a broad measure of prices across goods and services – has been negative since the second quarter of 2023, while consumer prices have fallen for four straight months year-on-year. To stop the deflationary spiral, Chinese authorities should address the cause: weak domestic demand, analysts said.
“So far, attempts to revive inflation by trimming supply and reducing overcapacity have shown limited results,” Miao Yanliang, chief strategist at Beijing-based investment bank China International Capital Corporation (CICC), wrote in a research note.
“Weak demand remains the underlying problem.”
Despite policymakers flagging cutthroat competition as a concern at the tone-setting Central Economic Work Conference last December, there are few signs of a rebound in prices, said Miao, who previously worked as a senior economist at the State Administration of Foreign Exchange for a decade.
Miao attributed the current deflationary spiral to downturns in the financial and property sectors as well as diminishing income expectations among Chinese households.
