USD/CNH: China’s economy is struggling to escape a deflationary spiral – BBH

FXStreet Insights Team FXStreet

USD/CNH rallied overnight by roughly 0.45% towards 7.2700, BBH FX analysts report.

China's consumption-to-GDP ratio is very low at round 40%

"China’s economy is struggling to escape a deflationary spiral. In February, headline CPI fell more than expected to -0.7% y/y (consensus: -0.4%) vs. 0.5% in January."

"This was the first drop in 13 months and largely reflects a high base from a year earlier. Core CPI declined for the first time since 2021 to -0.1% y/y vs. 0.6% in January as services prices fell the most in four years. Finally, PPI contraction extended into a 29th month falling by -2.2% y/y vs. -2.3% in January."

"To escape the debt-deflation loop, Chinese policymakers need to ramp up fiscal measures to boost consumption. China's consumption-to-GDP ratio is very low at round 40%, due to high household savings, low household income levels, and high levels of household debt."

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