Prices In China Fell Hook, Line, And Sinker Last Month

What’s going on here?

China’s prices slipped in October, fueling fears that deflation could sink its claws into the economy.

What does this mean?

China must’ve heard that the world’s bored of inflation stories, so it’s shaking up the narrative. The country’s consumer prices were 0.2% lower this October than last, while the amount paid to producers of goods fell for the thirteenth month in a row. That puts China on track for deflation, a much more menacing enemy than inflation. After all, if shoppers catch wind that prices are on the slide, they’ll hold off on loading their carts and wait for even better deals. And because stores want to shift their stock, they’ll pull prices lower to do that. Repeat that cycle a few times, and the economy will be left in a spin.

Why should I care?

For markets: Deflation’s a maze.

Deflation has already proved itself as a serious threat. Japan spent some 20 years desperately trying to energize slumping prices during its so-called “Lost Decades”. But China’s danced with the devil before too, and has somehow managed to hoist its economy out of the mud every time. This time around, the government’s been relying on baby steps to get the economy moving, like a series of small interest rate cuts. But if nothing changes in the next few months, the country will need to take off the kid gloves – and the stock market will be eager to watch the fight.

The bigger picture: China and the US can finally agree on something.

China’s currency has been keeping prices company on the descent, sliding to an all-time low against the dollar. Thing is, the cheaper China’s currency, the more affordable the country’s exports, which would lure in more foreign buyers. That’s a boon for China, and if the US makes the most of those cheap prices as a buyer, the bargains could help calm down stateside inflation.