China’s manufacturers have slashed prices at the fastest rate in six years in August as commodity prices fell and demand cooled, signalling stubborn deflation risks in the economy and adding to expectations for further stimulus measures.
The government is also still struggling to stabilise the Yuan after its surprise devaluation of the currency on Aug. 11 and halt a stock market rout that has seen the country’s share indexes plunge 40 percent since mid-June.Since the change in the Chinese currency regime, in both the US and the euro area the five-year forward inflation rate (favoured by central bankers as an indicator of medium-term inflation expectations) has given up more than half of the gains made since January.
It is likely that during the coming months renewed fears of disinflation or deflation will increase rather than diminish.
