http://www.economist.com/blogs/freeexchange/2014/11/chinas-economy?zid=295&ah=0bca374e65f2354d553956ea65f756e0
As surprising as it may sound, China, one of the worlds largest economy is currently going through deflation. Consumer and producer prices are falling for a while now and consumer price inflation is said to be at its lowest since 2010.
Central bankers fear deflation and believe that it is the most destructive economic force as it causes consumers to delay purchases and companies to put off investment which in turn creates a viscous cycle of contraction.
Moreover, the producer price index that is the PPI has reached the negative numbers. The PPI has been in deflation straight for the past 32 months. It has been caused mainly due to the slump in global commodity prices.
The central bank of China has still not made a decision.
In addition, deflation is terrible for debtors. While prices and wages fall, the value of one’s debt does not. This then requires debtors to cut spending, and they often do so more than creditors increase it; when this happens, it can potentially lead to a really bad downward spiral.
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