The benchmark consumer price index fell by 0.9 per cent in July, following drops of 0.8 per cent in June and 1.1 per cent in May. The National Bureau of Statistics said that the prices of most consumer goods and commodities fell in July, with those of mobile phones declining by 17 per cent and grain by 2 per cent. By contrast, the price of services increased, with the cost of medical treatment, for example, rising by 7.3 per cent and school tuition fees by 3.7 per cent.
Analysts quoted by Reuters attributed the decline to the weak global economy and the continuing oversupply situation in China. The government has taken steps to increase consumer demand, by increasing public sector salaries and reducing interest rates, but every increase in demand produces a corresponding increase in supply, as manufacturers bring idle capacity into use. As a result, the analysts did not expect deflation to correct itself in this year. However, they also said that the current level of deflation posed no risk to economic growth.