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

2 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.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG