China’s On The Verge Of Deflation, And That’s Partly Down To Pork Prices

China’s On The Verge Of Deflation, And That’s Partly Down To Pork Prices
Theodora Lee Joseph, CFA

3 months ago2 mins

What’s going on here?

China headed further into deflation territory, and the country’s favorite meat was largely to blame.

What does this mean?

Humans love to eat – so much so that food can make up a hefty chunk of countries’ inflation readings. But in China, it’s a different story. The price of pork, the country’s go-to meat, dropped nearly 32% in November, pulling down overall food prices by over 4%. And because food has such a heavy impact on prices as a whole, that partly explains why Chinese consumer prices notched their sharpest decline in three years. Now it’s true, much of the world would envy prices that are coming back down to Earth. But China’s on the verge of deflation – an economy-busting fall in prices that’s harder to tackle than inflation.

China pork prices

Why should I care?

For markets: Make friends in the right places.

China used to make a killing selling stuff like steel and cars abroad. But with the country battling a slowdown within its own borders, it’s added discount stickers to most of its exports – a desperate bid to make sure some cash flows into the economy. China’s currency weakening against the dollar hasn’t helped either, with foreign buyers able to get their hands on more products for less. One man’s trash is another’s treasure, mind you: if countries like the US can get Chinese goods for cheap, that could help them in their fights against inflation.

Yuan vs dollar
Source: Google Finance

The bigger picture: Down the helter skelter.

Deflation’s the enemy of any country, but especially ones with a lot of debt. (You know, like China.) Just think: if you make less money from every item you produce and sell, it takes a lot more effort to reach a target amount. For governments, that means they fall behind on their massive debts. And for everyday folk, the daunting price of borrowing puts them off using credit cards and loans to spread out spending, meaning less money moves around the economy.



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