Y/y CPI in China for January is expected to remain in deflation. There are some signs of a pick up in price growth in the m/m though.
Deflation is the general decline in prices for goods and services in an economy. It might initially seem beneficial because it increases the purchasing power of money. However, it can have several negative effects on the economy, making it undesirable for sustained economic health. Some of these are:
- When prices are falling, consumers may delay purchases in anticipation of lower prices in the future. This decrease in spending can lead to a drop in demand for goods and services, which can force companies to lower prices further, creating a deflationary spiral. Lack of demand is a problem in China's economy.
- Deflation increases the real value of debt, making it more expensive for borrowers to repay loans. This can lead to higher default rates and stress on financial institutions. For individuals and companies with debt, this means their expenses effectively increase, which can lead to reduced spending and investment. The property sector in China is in a deep debt hole, deflation is not helping with this.
- As prices fall, so do revenues for companies, while many of their costs (such as loans, leases, and salaries) may not decrease as quickly. This squeeze on profit margins can lead to layoffs, reduced investment in new projects, and a slowdown in growth.
- The combination of reduced consumer spending, investment, and higher real debt burdens can lead to lower overall economic growth. In severe cases, this can result in a recession, characterized by increased unemployment, lower incomes, and decreased economic output.
- This snapshot from the ForexLive economic data calendar, access it here.
- The times in the left-most column are GMT.
- The numbers in the right-most column are the 'prior' (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.
