China has been experiencing negative consumer prices for several months, a unique situation among major world economies. This deflationary trend stems from a collapsing real estate market, pervasive bearish sentiment, and weakened consumer confidence. In January 2024, China saw a 0.8% year-on-year decline in consumer prices, marking the fourth consecutive month of decreases and the sharpest drop in fifteen years.
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Factors like industrial overcapacity and a recession in the real estate sector contribute to this deflation. The prolonged real estate downturn has also affected household goods and housing prices, with home sales dropping by 6.5% last year. The International Institute of Finance (IIF) warns that deflation could further dampen consumer and investor spending, decrease nominal GDP, increase the debt-to-GDP ratio, and negatively impact investment and consumption due to declining asset prices and reduced wealth.
Source: Finance Yahoo