China May Dodge Deflation, After All

China’s economy appears to have survived its near miss with a damaging bout of consumer-price deflation—for now, the Wall Street Journal reported. After a grim June and July, China’s main August economic data, released Friday, contained clear hints of improvement. The news from the critical housing sector, which is mired in a protracted slump, was less encouraging: Price falls accelerated in lower-tier cities. But growth in retail sales accelerated to 4.6% from a year earlier, from just 2.5% in July. Unemployment ticked down marginally. And the past few weeks have witnessed a flurry of measures to support lending: Easier terms for second-time mortgage borrowers, and a big cut to banks’ reserve-requirement ratios on Thursday. All of this makes a protracted fall in consumer prices—which could trap China in a 1990s Japan-like cycle of falling prices and ultra-thrifty consumers—less likely. Chinese consumers remain very cautious and still appear to be saving at much higher levels than before the pandemic. But things have clearly improved somewhat in recent weeks. Most notably, job seekers in services—the economy’s biggest sector—seem to be having better luck. The services-sector purchasing-managers employment subindex, which plummeted in line with construction employment this spring, has now begun rising again—although it remains below the 50 point mark separating expansion from contraction. Some high frequency measures of consumer activity, including traffic congestion in major cities, also started to rebound in the late summer, according to Goldman Sachs. (Subscription required.) Read more. (Subscription required.)