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Chinese economy slips into deflation as recovery falters and demand slows

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China’s economy has fallen into deflation after consumer prices fell year on year last month for the first time in more than two years, official data shows, as slowing domestic spending weighs on the country’s post-Covid economic recovery.

The consumer price index, the main gauge of inflation, fell 0.3% in July, the National Bureau of Statistics of China (NBS) said, having flatlined in June. A survey of analysts had anticipated a 0.4% year-on-year decline.

July’s data was China’s first negative inflation reading since early 2021, when prices were weaker as the Covid-19 pandemic hit demand, and pork prices fell.

Separate figures released on Tuesday showed the country’s imports and exports fell more sharply than expected last month, amid waning global demand for Chinese products.

Retailers in China have been hit by a slowdown in sales. Businesses that stocked up on goods in expectation of a surge in demand after pandemic restrictions were lifted are now under pressure to cut prices.

The cost of cars has also fallen after Tesla triggered a price war in China’s electric vehicle market by reducing its prices.

Falling food prices also pulled down the cost of living. China’s core inflation rate, which strips out food and energy costs, rose to +0.8% year on year, up from +0.4% in June.

The country’s factories are already charging less for their goods, as they react to weakening demand after commodity prices fell. China’s producer price inflation, which tracks prices at the factory gate, was -4.4% in July, after a 5.4% year-on-year drop in June.

The Chinese economy’s slide into deflation is expected to lead to more calls for government stimulus, as Beijing also tries to address weakening trade activity and the slowdown in China’s property sector.

Elsa Lignos, the global head of FX strategy at the investment bank RBC Capital Markets, said: “There is an expectation that this will add pressure to policymakers to deliver stimulus though so far measures have been cautious.”

Analysts said the drop in Chinese inflation rates could help to ease price pressures in the west. Deflation in China “should help inflation in the US and Europe to moderate”, said Ding Shuang, the chief economist for greater China and north Asia at Standard Chartered bank.

But Tom Hopkins, a portfolio manager at BRI Wealth Management, said the data was a clear sign that the Chinese economy was weakening, which would spark concern for EU companies and economies for whom China was a key trading partner.

“China moving into a deflationary state bucks the trend of most western nations, which have been struggling with the opposite problem of high inflation,” Hopkins said.

Authorities have played down concerns about deflation. Liu Guoqiang, a deputy governor of the China’s central bank, last month said there would be no deflationary risks in China in the second half of the year, but noted the economy needed time to return to normal after the pandemic.

The Chinese government has set a consumer inflation target of about 3% this year.

The NBS predicted inflation would pick up in coming months, with its chief statistician, Dong Lijuan, saying: “With the impact of a high base from last year gradually fading, the CPI is likely to rebound gradually.”

Despite recent policy stimulus, consumers and manufacturers remained cautious amid the still-weak housing market, high youth unemployment and a diminishing appetite among foreign firms to invest in China.

Falling prices may sound attractive to consumers in the west, where inflation hit its highest levels in decades last year. In the UK, consumer prices were 7.9% higher than a year ago in June, as households suffered a long run of falling real incomes.

But deflation can hurt economic growth, as consumers will delay buying products if they think they will be cheaper in the future. This leads companies to cut back on investment as their profits shrink and can end with a freeze on hiring or the laying off of workers.

Chinese authorities have reportedly put pressure on high-profile local economists to avoid discussing negative trends in the economy, including deflation, the Financial Times reported.

Jim Reid, a strategist at Deutsche Bank, said the latest trade data highlighted that the Chinese economy was being “dragged lower by weakness in global demand and a domestic slowdown”.

The Biden administration is planning to ban private equity and venture capital investments in some Chinese technology companies, in an executive order expected to be released on Wednesday.

It will prohibit some US investments in sensitive technology in China, and require that the government be notified of other investments, a senior government source told Reuters.

The White House’s aim is to try to prevent US capital and expertise from helping to develop technologies that could support China’s military modernisation and threaten US national security.

Reuters contributed to this report

 

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A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

The Canadian Press. All rights reserved.

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