China registers hurting low inflation; indicating future slowdown

World’s second largest economy and emerging market giant, China registered an uneasy low inflation of 1.2 per cent. According to the data released by the National Bureau of Statistics, the economy has registered a further decline in its Consumer Price Index compared to the 1.5 per cent inflation experienced in April.

The low inflation for China given its inflation target of 3 per cent is not good news for its growth trend. Deflationary trends are just hinting the arrival of slow growth. China expects a mutually combatable GDP growth rate of 7 per cent and inflation rate of 3 percent.

The slowing prices are strongly visible in manufactured items. The producers’ price under the Chinese CPI has registered deflation for the consecutive 39th month. The producer price deflation always creates the risk of slowdown in investment and further economic growth. China last year has registered first below target growth rate in nearly ten years.

Over the last couple of years, the developed world has been reeling under the pain of hurting deflation-a situation that produced shrinking GDP in many countries. The US economy also shrank in the first quarter of this year according to the early estimates.

On the other side, most EMEs have survived deflation despite falling energy and food prices. Many of them including India are feeling comfortable low level of inflation.

For China, the present low inflation needs a policy correction in the form of monetary easing reported Chinese state media -the Global Times.