In early May, Oxford Economics lead economist Louise Loo said she was “less concerned” about the spectre of deflation in China. In three weeks that assessment has changed.

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“The risk of a more vicious deflationary loop between weak inflation and weak industrial output is now emerging,” she said.

Economists and governments fear deflation more than inflation because the lower prices go, the more buyers are encouraged to put off spending, dragging the economy into a loop of low growth, recession and unemployment that can take years to overcome.

China has a history of seasonal low price growth, but Loo argues “the deflationary forces this time around are quite different”. She does not believe there is enough demand in the Chinese economy. “That is, the risk that systemically weak demand and a drop in spending have caused producers to cut prices in order to find buyers,” she said.

Chinese economic data can be massaged to suit the government line. The country’s National Bureau of Statistics reading for inflation (CPI) in April was 0.1 per cent – a two-year low – while its factory gate prices (PPI) fell for the seventh consecutive month.

But rolling quarterly data analysed by Oxford Economics showed inflation was negative 0.7 per cent.

Even Japan, which has struggled with ultra-low inflation and low economic growth for decades because of tight restrictions on money supply, saw its inflation rate hit 3.2 per cent in May.

The People’s Bank of China said in April that it did not believe the Chinese economy was deflationary and that prices were likely to return to the average levels of previous years in the second half of this year.

“With the strong support of a package of policies to stabilise the economy, a recovery in domestic production has continued to accelerate,” said Zou Lan, the head of the monetary policy department at the bank.

But at markets in Beijing, where stalls that specialise in food nearing their use-by date are booming, few are buying the official narrative.

“I don’t feel optimistic about the Chinese economy,” said Hou Shaoxia. “There have been lots of foreclosure homes entering the market since last year because many people couldn’t pay off their mortgages due to the under-performing economy.”

Renters are feeling the pinch too. “They are really running out of money now,” he said. “The rental market this year is even worse than that of 2022, the year worst hit by the pandemic.”

Hou worries the economic woes are about to get worse. China’s population is falling more rapidly than the government expected, with the number of newborns dropping from 18 million a year last decade to 9 million in 2022.

“The biggest problem of the Chinese economy is population. We have long enjoyed a population dividend for many years, but now it’s gone,” said Hou.

“If a government doesn’t face up to the population problem, it’s a short-sighted government. It stands on neither the side of the people nor the rulers.”