Why Low Inflation in China Is No Cause for Applause

To the disappointments of China's recovery, add inflation. Rather than accelerating quickly with the dismantling of pandemic rules, as was the case in most big economies, prices are quiescent. Too much so. The dissonance points to deep challenges beneath the respectable headline growth numbers in the world’s second-largest economy. That isn't good news for anyone.

Inflation barely had a pulse in April. Consumer prices rose a mere 0.1% from a year earlier, the government reported Thursday. That was the lowest in two years and below economists’ forecasts. The news was even worse when it came to the factory gate. Producer prices tumbled 3.6%, reflecting, at least partly, softer commodity costs. This number isn't a one-time problem: CPI has been retreating since the start of the year. When China scuttled Covid Zero in December, it was fair to worry whether the comeback would be too strong, complicating global efforts to tame price pressures. Such concerns now look misplaced.

How long before top officials in Beijing start citing Janet Yellen? Not Yellen, the US Treasury secretary since 2021. The Yellen of several years earlier, when in a less political role as Federal Reserve chair, she agonized over inflation numbers that were too low for comfort, despite a durable and strengthening rebound from the sub-prime mortgage fiasco. She called MIA inflation a “mystery.”