CHINA'S
DEFLATION - ECONOMY
News:
Deflation: Why falling
prices in China raise concerns
What's
in the news?
● China’s
consumer prices have slipped into deflation for the first time since its
peak-pandemic demand lull in early 2021.
Key
takeaways:
● The
consumer price index was down 0.3% in July, according to the latest official
data.
● This
comes a day after the country reported a drop in exports as well as imports
last month.
Deflation:
● Refers
to a sustained and general decrease in
the overall price levels of goods and services in the economy.
● Deflation
is the opposite of Inflation.
● During
deflation, the purchasing power of
currency rises over time.
Causes
of China's deflation:
● There
is a slump in demand at home.
● Its
export engine is sputtering.
● Prices
going down can be a big nightmare, as it means money unspent actually gains in
value, a classic trap of a commercial wind-down that Keynes had warned us of.
● Zero-Covid Policy
● Slowdown
in the Property and Banking Sector.
● Unemployment
Impacts:
● Impaired
Growth.
● Losses
to business and production.
● Reduced
jobs and remuneration during a deflation.
● Adversely
impact borrowers as they will have to pay back lenders more in real terms.