China firmly in deflation's grip

Chinese energy sector worker Mandy Li likes to treat herself to a luxury brand handbag once in a while. But since her state-owned employer cut her wage by 10% and the properties her family owns lost half their value, she only buys second-hand ones.

- LIANGPING GAO CASEY HALL

"I'm cutting down on large expenditures," said 28-year-old Li, while browsing for items in Beijing's Super Zhuanzhuan second-hand luxury items store that opened in May.

"The economy is definitely in a downturn," she said, adding: "My family’s wealth has shrunk by a lot" due to the property crisis China has been grappling with since 2021.

As deflationary pressures mount in the world’s second-largest economy, consumer behaviour is changing in ways that could lead to further downward pressure on prices, raising concerns that deflation could become entrenched, posing more headaches for China's policymakers.

Data showed on Monday that consumer prices fell 0.1% in May from a year earlier, with price wars raging in a number of sectors, from autos to e-commerce to coffee amid concerns about oversupply and sluggish household demand.

"We still think persistent overcapacity will keep China in deflation both this year and next," Capital Economics said in a research note.