China, one of the biggest economies in the world, has recently reported its lowest inflation numbers in over two years. According to data from the National Bureau of Statistics (NBS), the Consumer Price Index (CPI) increased by 0.1% year-over-year, which is a significant drop from the 0.7% registered in March. The decline in prices was caused by a decrease in food and beverage prices, which went from 2.4% in March to less than 1% in April. Core inflation, which excludes food and beverage prices, rose by 0.7% year-over-year.

Analysts Concerned About Slow Economic Recovery

The low inflation numbers have worried analysts who see it as a testament to China’s slow and rocky economic recovery after the coronavirus pandemic. However, an official with the Peoples Bank of China (PBOC) dismissed these concerns, stating that there is no basis for long-term deflation or inflation. The official also expects consumer demand to warm up during the second half of this year.

Expectations for Inflation Levels to Hit 0%

Standard Chartered has predicted that inflation levels will hit 0% in the next few months due to a crude-oil price spike in the first half of 2022, which created a high comparison base. Despite slow inflation levels, the bank has forecasted a growth rate of over 5% without adjusting interest rates, which currently stand at 1%.

Proposals to Avoid Deflation

Experts who are concerned about the possibility of deflation have made various proposals to avoid it. Li Daokui, a professor of economics at Tsinghua University and former member of the PBOC advisory board, has suggested that the government should provide cash handouts to citizens to stimulate demand. Li argues that even with a conservative estimate, 500 billion yuan in consumption vouchers will drive one trillion yuan in overall consumption. The state would also receive over 300 billion yuan in taxes derived from the spending directly enabled by the cash handouts, according to the professor.

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