China’s consumer prices stayed the same in July compared to last year, giving the struggling economy a short break from months of falling prices. However, weak demand and the risk of deflation (when prices keep dropping) are still major concerns.
Official data from the National Bureau of Statistics showed the Consumer Price Index (CPI) was unchanged year-on-year, which was better than Bloomberg’s prediction of a small 0.1% fall. But prices in rural areas fell by 0.3% and prices for consumer goods dropped by 0.4%.
While lower prices might seem good for shoppers, experts warn that long periods of falling prices can hurt the economy. People may delay buying things if they think prices will drop further, which slows down growth.
China’s consumer confidence is already low because of a long property market slump and high youth unemployment. Trade tensions with the United States have made the situation worse.
In June, prices had risen slightly after four months of decline, mainly because car and smartphone prices stopped falling as quickly. Still, experts are not sure if the danger of deflation is over.
Economist Zhiwei Zhang said the property sector is still unstable and the economy depends more on exports than on people spending within China.
The Producer Price Index (PPI), which tracks what factories charge for goods, fell 3.6% in July — the same as in June — marking almost three years of declines. This has hurt company profits due to tough price competition.
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China’s foreign trade improved in July compared to last year, but uncertainty remains. The current trade truce with the US ends on Tuesday, and if no deal is made, higher tariffs could return.
