Prices Didn’t Exactly Fly In China Last Month

Prices Didn’t Exactly Fly In China Last Month
Paul Allison, CFA

7 months ago2 mins

What’s going on here?

Data out on Wednesday showed that China’s consumer prices fell in July – including the cost of the country’s favorite meat.

What does this mean?

With over six months of tepid Chinese economic data behind us, July’s dip in prices wasn’t entirely unexpected. And that 0.3% drop from the same time last year was mostly down to food and energy costs taking a hit – with pork prices plummeting a hefty 26%. And sure, if you strip out volatile items like that, then prices actually still climbed. But those staples are a porky part of Chinese households’ expenses, and if they stay weak, falling prices could become a regular fixture in China.

China CPI

Why should I care?

For markets: Deflation dread.

The mere whisper of deflation sends shivers down economists’ spines. Just ask China’s neighbor, Japan: after the late ’80s property bubble, the nation grappled with persistent price drops. And that meant consumers and businesses clutched their wallets tighter and tighter as time went on, awaiting future bargains – which ultimately caused a spending freeze that wreaked havoc on Japan’s economy and stock market. Spotting parallels between China now and Japan then is easy – from the countries’ aging demographics to their property market ups and downs – so China’s leaders will be desperate to avoid a repeat of Japan’s so-called “lost decades”. But, hey: maybe this data will finally shock them into making some serious economy-boosting moves.

The bigger picture: Watch closely.

Leaders in the West will be paying close attention to China’s inflationary trajectory. For one, it could be a sign of things to come: if the world’s second-biggest economy is any indicator, then the West could wind up grappling with declining prices too. And for another, lower prices in China might percolate through the world in the form of cheaper exports. And if both those things happen, a swifter-than-expected interest rate pivot just might be in the cards in the West.

China inflation vs peers


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