China’s economy has slipped into deflation as consumer prices declined in July for the first time in more than two years. The official consumer price index, a measure of inflation, fell by 0.3% last month from a year earlier. Analysts said this increases pressure on the government to revive demand in the world’s second largest economy.

China’s gross domestic product saw minimal growth from April to June, compared to the previous quarter, as the initial economic surge following the easing of pandemic restrictions last year waned. The country is also grappling with a prolonged downturn in its real estate industry and sluggish trade.

China has refrained from the extensive Covid-era support seen in developed economies, aiming to avoid the inflationary shocks seen elsewhere. However, this approach resulted in decreased disposable household income due to stagnant wages and property values, as noted by UBS analysts.

Despite adjustments to interest rates, promises of greater support for the private sector, and incremental measures to boost the property market, these efforts have not significantly rejuvenated the economic recovery.

Analysts emphasize that Beijing needs more robust strategies to rebuild confidence and stimulate consumer spending.

Zhiwei Zhang, President and Chief Economist for Pinpoint Asset Management, commented, “The economic momentum is diminishing due to lackluster domestic demand.”