June 25, 2022

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Unlike other parts of the world, prices in China are stable

Unlike other parts of the world, prices in China are stable

Unlike other economic powers, China saw a decline in prices last year, paving the way for the possibility of lowering interest rates in support of measures undervalued by the real estate crisis.
In 2021, inflation was 0.9% (and 1.5% year-on-year in December and 2.3% in November), according to the National Statistics Office.
This is a very slow pace compared to the rate recorded a year ago (2.4%) as a result of the complete cessation of activity in China in early 2020 after the spread of Covit-19.
On the other hand, the rapid pace of inflation in the euro area and in the United States is worrying.
Prices of consumer goods in the United States rose by 7% in 2021, the largest increase since June 1982, according to official figures released on Wednesday.
Jerome Powell, chairman of the US Federal Reserve, said this week that restoring price stability was “important” to justify this year’s interest rate hike in the United States.
This Chinese trend can be partly explained by the fall in food prices, as fears of inflation hang over world markets.
The decline in pork (-36% a year) is significant, making it the most consumed in the country.
The price of pork has doubled in recent years due to the African swine flu epidemic that devastated farms. However, prices remained stable with the fall of the disease in 2021.
In an epidemic-restricted environment, officials have urged people to make precautionary purchases in early November by inviting people to create food reserves with isolation and isolation measures.
Price stability
In terms of production prices, inflation eased last month, rising only 10.3 percent year-on-year to 12.9 percent in November.
The price index of exiting factories in September (13.5%) saw its biggest increase in more than 25 years.
On average, production prices rose 8.1% in 2021 after falling 1.8% a year ago.
“Production prices are expected to continue to fall in the coming months,” said China Yu, an analyst with the Capital Economic Group.
He further warned that “the re-emergence of the epidemic could lead to more disruptions in distribution networks.”
About 20 million people have been isolated in three weeks in three cities across the country, especially since the appearance of the Govt lawsuits, especially from the clumsy Omicron.
Lu Ding, an analyst at investment bank Nomura, sees lower prices as a “small cut in central bank interest rates” to support a weakened economy.
Xiwei Zhang, an economist at Pinpoint Asset Management, which expects interest rates to fall, also warned that a resurgence of epidemics in China “poses additional risks to the economy.”
Towards lower interest rates
China has largely recovered from the initial shock of the epidemic, but random hotspots of COVID-19 in the country are slowly operating.
Moreover, the recovery has been hampered by rising raw material prices and the real estate crisis, with developer Evergrande on the brink of bankruptcy.
The debt burden of the sector-leading group is about 260 billion euros. It has been trying for months to hand over the apartments by paying its interest.
The construction and real estate sector accounts for more than a quarter of China’s GDP and serves as a driver for many sectors, such as steel and furniture.
Higher prices of labor, raw materials and energy, in the context of global distribution in a tense situation, are negatively affecting companies in the world’s second largest economy and affecting consumption.
To bolster this move, Beijing in December lowered the required reserve ratio for banks to increase the share of deposits they hold in their coffers.
The central bank also cut the reference rate for loans for the first time in two years.
(AFP)

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