China’s inflation rate has dropped to its lowest level in two years in April, according to the National Bureau of Statistics. This decrease in prices has been mainly caused by the drop in food and beverage prices and has raised concerns regarding potential dangers of deflation. Year-over-year inflation was recorded to be 0.1%, whereas core inflation, excluding food and beverage prices, was found to be higher at 0.7%. This rate has fallen short from the targeted 3% for the year.

Food and beverage prices decreased from 2.4% in March to below 1% in April, at the same time core inflation rose from 0.6% to 0.7%. Despite worries from some analysts of a sluggish recovery from the pandemic, Zou Lan from the People’s Bank of China assures that there is no reason for long-term deflation or inflation. A boost to consumer demand is expected in the second half of the year.

Meanwhile, in the US, consumer prices rose by 4.9% in April as the Federal Reserve attempts to manage the rate hikes it has implemented. In China, service prices have increased by 1%, attributed to consumer spending on travel and leisure activities. Service prices are estimated to have normalised while the manufacturing sector is still declining as shown by the decreasing producer price index.

The economy in China is anticipated to grow by 5% this year, however this has been noted to be a difficult task. The low inflation rate highlights the challenge faced in the nation’s economic recovery and the difficulties encountered in maintaining balance in a rapidly altering global dynamic.

In anticipation of the possibility of deflation, certain preventative measures have been proposed. Li Daokui, an economics professor and ex-adviser of the People’s Bank of China, suggested the distribution of cash handouts to stimulise demand. He believes this will result in over a trillion yuan of consumption and yield the state 300 billion yuan from the increased consumer spending.



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