Deflation Crisis Is The Focus Of Global Attention

Due to the government's anti-corruption actions, the expensive banquet among officials has been sharply reduced in Beijing, which has led to lower inflation in Beijing.

However, because there are not so many high-level officials gathered in Shanghai, the impact of the government's anti-corruption actions on consumption activities is not as obvious as in Beijing.

Since last month, Zhou Xiaochuan, President of the people's Bank of China, spoke of China in the Boao forum for Asia.

Deflation has become the focus of attention from all over the world.

The reason why Zhou Xiaochuan is worried about China's possible deflation is that China's producer price index (PPI), which is the benchmark index for measuring the price of industrial products, has experienced the biggest decline since 2009, in February.

With commodities such as copper, iron ore and oil

China's second largest economy in the world has slowed down as the economy continues to slump, while inflation is also falling as the economy slows down.

The price spiral mechanism was propped up by commodity and industrial production, while the production price index (PPI) plunged 4.8% in February from a year earlier, the biggest decline since the global economic contraction in 2009.

The consumer price index (CPI) increased by 1.4% in February compared with the government's annual target of 3%.

China's inflation figures for March will be released on Friday (April 10th).

The year-on-year increase will fall to 1.3%, and PPI will remain unchanged from 4.8% in February.

Tom Orlik, Bloomberg's chief economist, points out that the decline of PPI is due to excessive supply of commodities, which is good news for China, because China can make cheaper products to occupy the global export market.

However, PPI also means that excessive production of basic products such as steel and cement is not a good thing.

On the CPI, low food prices are the hints of low workers, while low labor is a sign of sluggish labor market.

This is clearly not a good omen for the economic outlook.

What worries us is that low inflation will suppress public consumption intention and further increase the household savings rate, which in turn will further exacerbate deflation and create a vicious cycle similar to that in Japan.

The rate of inflation in China has made economists staggering.

The trend of price level has also made analysts unprepared. Since October 2013, Citi's inflation surprise index has become more and more negative, which means analysts' forecasts are more inaccurate.

Chen Xingdong, chief China economist at Bank of Beijing, Paris, points out that unstable international and domestic factors make it more difficult for economists to accurately predict price changes.

Inflation is not the same among 32 provinces, municipalities and autonomous regions in mainland China.

The regions where consumer prices rose least in 2014 were Inner Mongolia, Zhejiang and Beijing, where CPI rose by less than 0.8%.

The biggest increase in prices was Qinghai, which rose by 3.5%, up 2.6% of Shanghai, Tibet and Guizhou.

In fact, China's industrial contraction is a global problem.

The decline in factory prices has allowed Chinese exporters to lower their asking price, which has intensified the pressure of global deflation.

The export price index from China's customs dropped 3.7 points from last month, the biggest drop since January 2012.