Deflation Fears in China Further Deepen as Producer Prices Drop at Its Greatest Speed in Six years

Deflation Fears in China

The deflation risks are dawning deeper for the Chinese economy as the manufacturers in August cut prices at the greatest ever speed with dropping commodity prices and slowing demands. The slowing economic growth and increasing woes of deflation have added to expectations that the government will introduce fresh stimulus measures.

Data released on Thursday showed that, in August China's producer price index or PPI dropped 5.9 percent as compared to the same period in the previous year. Marking its forty second continued drops, it is the biggest dip since 2009 when the global financial crisis struck. After July's 5.4 percent drop the market was expected to slip 5.5 percent.

An economist with Shenyin & Wanguo Securities, Li Huiyong said "The change in PPI is very worrying. It could affect corporate profitability, which in turn could affect consumption and the economy. We must step up policy support." A silver lining on the cloud was marked by a rise in the consumer-price index which moved up 2.0 percent in August as compared to last year according to the National Bureau of Statistics.

The rise in the consumer inflationary rate attributed mainly to the increase in pork prices recently which spiked 19.6 percent as compared to one year back.