After 39 consecutive months of declining producer prices, deflation is becoming a serious concern among Chinese economists and policymakers. Given slowing economic growth and massive corporate debts, China’s authorities should learn from the recent past to avoid a deflationary spiral.
BEIJING – At a time of slowing economic growth and massive corporate debts, a deflationary spiral would be China’s worst nightmare. And the risk is mounting. The producer price index (PPI) has been in negative territory for 39 consecutive months, since February 2012. The growth of China’s consumer price index (CPI), though still positive, has also been falling steadily, from 6.5% in July 2011 to 1.2% in May. If past experience is any indication, China’s CPI will turn negative very soon.
BEIJING – At a time of slowing economic growth and massive corporate debts, a deflationary spiral would be China’s worst nightmare. And the risk is mounting. The producer price index (PPI) has been in negative territory for 39 consecutive months, since February 2012. The growth of China’s consumer price index (CPI), though still positive, has also been falling steadily, from 6.5% in July 2011 to 1.2% in May. If past experience is any indication, China’s CPI will turn negative very soon.