China's Deflation Eases, But Fitch Warns of Demand-Led Price Risks
Fitch says China's deflationary pressure has softened, but weak domestic demand and labour market risks could reignite price declines.
Fitch Ratings has observed a moderation in China's deflationary trend, with price declines easing in recent months. However, the agency cautions that the underlying weakness in domestic demand continues to pose a significant risk to sustained price recovery.
The ratings firm highlighted that without a more pronounced recovery in domestic consumption, China could slip back into a deflationary spiral. This concern is underpinned by labour market indicators, which Fitch says point to weak employment dynamics. These conditions are constraining wage growth and dampening consumer confidence, creating a feedback loop that limits spending.
Price pressures across the economy remain subdued, according to Fitch. The agency noted that these persistent weak price dynamics underscore the downside risks to its inflation forecasts for the world's second-largest economy. The assessment suggests that while the immediate deflationary shock may have passed, the structural factors keeping prices low are still firmly in place.