Aug 12, 2023 at 7:11 AM Update: 16 minutes ago
While prices in the Netherlands have been skyrocketing for a year now, prices in China fell in July for the first time in more than two years. The fear of deflation is increasing. Why is that a problem?
In July, Chinese consumer prices fell by 0.3 percent, according to figures from the Chinese bureau of statistics. The costs of food, transport and household items in particular fell sharply in the East Asian country.
This means that China does not suffer from inflation, like many European countries, but from deflation. While inflation causes prices of goods and services to rise, deflation causes prices to fall.
In many countries, people started spending more after the corona restrictions were lifted. Businesses struggled to keep up with demand. This caused prices to rise. That higher inflation was given an extra push when energy costs rose due to the war in Ukraine.
In China, prices did not rise when the corona measures disappeared. This means that the Chinese population and companies did not spend more, as we do.
When people spend less, companies are often forced to offer their products and services at lower prices.
In China, there are two other major factors that are causing the economy to fail. Problems in the export and real estate market are slowing down economic growth in China.
Deflation is especially a problem if a country has high debts, because they are more difficult to repay. And the Asian country currently has it.
Economists are also usually scared of deflation, because it can lead to a vicious circle in the economy. People see prices fall and keep the money in their pockets hoping for a further fall. As a result, less is spent.
Yet the government continues to deny that the country is slipping into deflation. “In general, there is no deflation in China’s society, and it will not happen in the future,” said Fu Linghui of the national bureau of statistics.
2023-08-12 05:11:50
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