CHINA: China’s inflation rate, which measures the cost of living, has dropped to its lowest level in over three years. This means that prices for goods and services, excluding food and energy, have barely increased.
The government is worried because this shows that people are not spending much money, which could slow down the country’s economic growth.
As per the report published by Bloomberg, the consumer price index (CPI), which tracks the cost of everyday items, went up by only 0.3% in August compared to the previous year.
This is the smallest increase since March 2021. Even though food prices were higher due to bad weather, the overall CPI increase was just 0.6%, less than expected.
This situation has led to concerns about a cycle where companies make less money, pay lower wages, and people spend less. Economists are calling for stronger actions to boost spending and prevent prices from falling further.
Inflation and the Chinese stock market
The stock market in China has also been affected, with the CSI 300 Index dropping. The yuan, China’s currency, has seen small losses, and the interest rates on government bonds have stayed low.
China’s economy has been dealing with falling prices for a long time, similar to what happened in 1999. This is partly due to weak demand for products like electric vehicles and solar panels, leading to price wars.
The government is under pressure to meet its economic growth target of about 5%, but with consumers putting off purchases and companies cutting costs, it’s becoming harder to achieve.
Encourage spending and investment
Experts suggest that the government should take more active steps to encourage spending and investment. They believe that lowering the amount of money banks need to keep in reserve could help stimulate the economy. The central bank has hinted that it might do this, and many expect it to happen in September.
Overall, China is facing a tough situation with weak domestic spending and investment, and it needs to take decisive actions to get the economy back on track.
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