- cross-posted to:
- world@lemmy.world
- cross-posted to:
- world@lemmy.world
Beijing officials call China’s current deflationary malaise “involution” — a destructive cycle of intense, self-destroying business competition sparked by excess capacity. Yang Zhifeng calls it something else: “twisted.”
Deflation signals a lopsided economy where supply dwarfs demand. That hurts companies, which in turn hurts workers. As consumption weakens, businesses spend less, economic activity slows, debt burdens rise, which then causes more deflation. The downward loop, known in economics as a deflationary spiral, feeds on itself once entrenched.
The trend also carries global implications: cheap Chinese exports can depress prices abroad, strain relations with trading partners, and create knock-on effects for multinational companies. Global institutions are sounding the alarm, with the International Monetary Fund projecting that consumer inflation in China will average zero this year — the second-lowest of nearly 200 economies it tracks. The Bank of Korea warned in July that China could export deflation to its trading partners.
And the problem could be even worse
And the problem could be even worse than they realize. China’s official CPI figure — which offers limited item-level detail and is shaped by a complex methodology that isn’t transparent — has hovered around zero since early 2023, occasionally posting modest gains. Bloomberg News analyzed prices for dozens of products in 36 major cities as well as both official and private data across China to get a sense of how much cheaper things have become on the ground. We looked at items in categories like food, groceries, consumer goods and services, as well as housing costs and price changes for specific car brands.
The analysis showed that prices are unmistakably dropping. Among 67 items tracked by Bloomberg News, prices on 51 dropped over the last two years. Economists say that official inflation measures may only partially capture the reality. Many key data series have quietly disappeared in recent years, and the National Bureau of Statistics has never offered the sort of granularity more common in the US, where inflation trackers go so far as to publish the cost of indoor plants and pet food. An outdated methodology for calculating rent changes in the CPI likely led to its overestimation in the past few years.
The NBS didn’t reply to a faxed request for comment.
Both uncontrolled inflation and deflation are undesirable, I get that. My question was: why progressive inflation is deemed beneficial, while progressive deflation is deemed as the spawn of Satan?
My impression (as someone who is not an economist) is that a lot of it is linked to not-too-distant history: the typical “go-to” strategies for deflation under the prevalent monetarist ideas (i.e. economic school of thought about influencing the economy by controlling the amount of money in circulation) weren’t effective in combatting deflation in a few cases in Japan and the US in the early 1990s and early 2000s.
So perhaps it causes such panic because it exposes the weaknesses in the economic models that we see dominating modern politics. Inflation may be perceived as more manageable because it acts according to what the models say will happen, more or less, which makes it more controllable. It seems that may be less true for deflation.