The price of daily necessities is decreasing in China, yet analysts are worried. Why?
While the cost of essential goods continues to rise globally, the opposite trend is observed in China. Instead of increasing, prices are decreasing there. This decrease in prices has also caused concerns among economists.
China, the world's second-largest economy, officially entered a period of "deflation" within the past two years. During this time, the prices of daily necessities in the country have experienced a decline of nearly 3 decimal places. This price decline persisted in 2023. Despite price increases worldwide, China has seen the opposite trend.
Although consumers might find joy in lowering prices, economists view the reduction in prices for goods and services as a negative indicator of the economy.
When prices decrease over an extended period, consumers spend less, which, in turn, leads to reduced demand for goods and a decrease in production from manufacturers. Consequently, many companies lay off workers and cut wages.
At this moment, the deflationary trend coupled with the aftermath of the COVID-19 pandemic raises concerns about China's economic strength. Analysts are puzzled about why China's essential goods prices are decreasing.
China has faced deflationary issues before. However, economists are more concerned this time. The most recent occurrence of falling prices for essential goods in China was seen in 2021. The country faced stricter restrictions due to the pandemic that year, leading to reduced demand for many companies products. Many businesses had to halt production.
Despite efforts to uplift the economy after the strict measures last year, China's economic growth prospects for Beijing in 2023 have been curtailed by a few major investment banks. They further stated that achieving the targeted 5% growth rate will be difficult without significant policy steps.
Due to the fear of dangerous lockdowns, most Chinese consumers are still cautious about spending their money, which inhibits significant economic growth.
On the other hand, foreign consumers are purchasing fewer products from Chinese companies due to uncertain global economics and geopolitical tensions.
This critical issue has emerged in China at a time when the country's economy could face severe distress due to declining birth rates, regional government debt, a housing bubble, and a high rate of unemployment among youth."
Source: Al Jazeera
