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Behind the ticking time bomb – should we fear China’s slide into deflation?

By Amy Hawkins

12 Aug 2023 · 5 min read

informed Summary

  1. China’s economy is a “ticking timebomb,” U.S. President Biden said as two key indicators of Chinese inflation turned negative this week, raising concerns of deflation in the world's second-largest economy. The consumer prices index fell by 0.3% and the producer prices index fell by 4.4% compared to 2022, the first time both figures have been negative since November 2020.

When two core indicators of Chinese inflation turned negative this week, alarm bells rang as the world’s second-largest economy started sliding into deflation. According to Joe Biden, China’s economy is a “ticking timebomb”.

The US president’s comments followed official data from China showing that July’s consumer prices index fell by 0.3% compared with 2022, while the producer prices index fell by 4.4%. It is the first time that both figures have been negative since November 2020, when the global economy had all but juddered to a halt during the peak of the Covid-19 pandemic.

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