Inflation has been one of the main headaches for economies around the world. This is also true for China, but in its case for reasons that are the opposite of those in the rest of the world: the lack of price increases (year-on-year inflation in China was zero in June) shows that the post-pandemic recovery of the Chinese economy has lost momentum and that the Asian giant faces the risk of deflation. The producer price index, which measures the average change in sales prices for local producers of goods and services, fell 5.4% between July 2022 and June 2023.

The fall in the price of oil and other raw materials are among the reasons behind the slump, but analysts agree that there is a problem of low demand. The problem, they point out, is that unlike in 2009, when they faced deflation due to the global financial crisis, the Chinese government has little room for maneuver to stimulate consumption and the economy. At that time, it injected more than US$500 billion into the economy and relaxed provincial government debt limits, raising debt to worrying levels. Today, with risks precisely due to the high levels of debt in the economy, that strategy is limited.

The Chinese government has announced that it will implement targeted measures to revitalize demand, but without providing further details. For now, monetary authorities cut the prime lending rate for one-year and five-year loans in June, established tax exemptions for buyers of electric vehicles, and enacted measures to ease credit pressure affecting the real estate sector. 

This has impacted the price of copper, which has fallen by almost 10% in the last six months.