China's economy slipped further into deflation in November. As the statistics office in Beijing announced on Saturday, the prices for goods and services fell by 0.5 percent compared to the same month last year, the most in three years. This means Chinese consumer prices are in deflationary territory for the second month in a row.
The decline in price levels has been more significant than most economists predicted. Producer prices fell particularly sharply in November by 3 percent compared to the same period last year.
Deflation is the opposite of inflation and refers to the decline in the general price level. A general price decline occurs when consumers hold back on purchases in anticipation of further falling prices, which in turn depresses companies' sales, profits and investments. Most economists consider deflation to be more dangerous for the development of an economy than slightly rising prices.
At first glance, consumers benefit because they have to pay less for goods and services. However, deflation usually also puts pressure on companies' profits and therefore poses the risk of wage cuts or layoffs, for example.
The deflation that has persisted since October is viewed by observers primarily as a sign of economic weakness. In particular, the ongoing real estate crisis has depressed consumer confidence for many Chinese people.