Great leap backwards? Deflationary slide sparks global fears

When two core indicators of Chinese inflation turned negative last 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".

- Amy Hawkins

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.

It is not all bad news. Analysts at Trivium China, a consulting firm, pointed out that consumer prices in July had crept up compared with the previous month, a sign that the fall may have bottomed out. Core inflation, which excludes volatile food and energy prices, increased slightly in July. In the first half of the year, GDP grew by 5.5%, suggesting that it may be on track to reach Beijing's modest target of 5% growth in 2023.

Many analysts had expected that, after Beijing abandoned zero-Covid restrictions at the end of last year, China's economy would roar back to life. Household savings surged by 17.8tn yuan ($2.5tn) in 2022, cash that many thought would be burning holes in pockets. Instead, the Chinese are consuming cautiously.