Deflation in China (Headline), Disinflation in Core Inflation

Stats reported yesterday:

Source: TradingEconomics. Note: Scales differ.

Bloomberg discusses pork prices on the eve of the Lunar New Year.


26 thoughts on “Deflation in China (Headline), Disinflation in Core Inflation

  1. pgl

    China’s Lunar New Year Pork Gloom Exposes Deep Economic Trouble
    Festive season traditionally sees high demand for meats
    Sustained low pork prices worsening China’s deflationary fears

    Bloomberg’s title strikes me as weird. Now I have not eaten pork in over 16 years but if I did, I would be celebrating a decline in pork prices.

    1. Moses Herzog

      I think they mean in terms of the broader economic implications. But I suppose for low income mainland Chinese who can manage to keep their jobs it might be some happy news.

      I know this time of year is important for them, just like our Thanksgiving, Christmas, etc. I hope they have the happy time and some respite from the rigors of life. God knows some of them deserve it.

  2. JohnH

    South China Morning Post provides some much needed context to the Chinese deflation story.

    And Jeffrey Sachs notes that “The US government and therefore the mainstream media are promoting the view that China’s economy is in trouble. This is a bit of an echo chamber. One reporter close to the government writes it, and then other reporters repeat the same exaggerated story. They don’t know much about China or about the deep strengths of China’s economy, including major advances in technology, global export competitiveness, and high saving and investment rates.”

    1. Ithaqua

      The idea that the U.S. government doesn’t know much about the Chinese economy, while Jeffrey Sachs, noted sustainable development economist, does, seems ludicrous on the face of it. Of course, everyone who pays any attention at all knows that it has made some major (catch-up) advances in technology, e.g., chips, has global export competitiveness with lots of goods due in large part to cheap (and in some cases slave) labor, and high saving and investment rates that cause disaster for a lot of people when, e.g., Evergrande folds. Even I know all this (without relying on Jeffrey Sachs!) and I’m not a CIA economist on the China beat.

      Could you please think a little more critically about what you read? It would save us from reading many of your comments, as you would no longer find a reason to write them.

      1. JohnH

        Yes, the US government indeed has people who know a lot about China. But is that what is told to the press? And do top decision makers listen to those who understand China?

        If the decisions made about Vietnam, Afghanistan, Iraq, and Ukraine are any indication, a lot of propaganda get pumped out, political leaders believe there own BS, which explains the pointless and futile quagmires the US gets itsel into.

        The SIGARS report on Afghanistan: “ The interim report is another damning indictment of the failed planning and strategy that plagued America’s vision for Afghanistan, even as special inspector general John Sopko wrote that the eventual collapse was “predictable.” The US repeatedly set goals for the Afghan military that were unattainable, implemented metrics that delivered success while obfuscating the real problems and poured resources into solutions that only exacerbated the issues they were meant to fix.”

        Why would US foreign policy dysfunction magically have cured itself in the year after the Afghan debacle? Ithaqua needs think critically about what he reads in the US media. Remember “the ruble is rubble?”

        1. Ithaqua

          Wow, the U.S. screwed up in propping up an unpopular government in a small country on the far side of the planet for a bunch of years at not much cost to us. Therefore, all of U.S. foreign policy is dysfunctional. That’s quite a leap. Yes, we and others who aren’t of the “kill them all, and replace them with loyal Russians” mindset have tried and failed at nation-building a few times. So what? Live and learn. That doesn’t mean that all aspects of U.S. foreign policy are dysfunctional; it’s just that we tried nation-building a few times and learned it didn’t work.

          Maybe you don’t try anything new for fear of screwing up and therefore don’t understand the mindset involved.

          As to the rouble – even Russia’s good buddy China won’t accept it anymore. That’s pretty grim.

          1. Moses Herzog

            Mainly the Republican party is dysfunctional. Which is why Ukrainians have few weapons now and are being slaughtered. Thanks MAGA!!!!

      2. pgl

        When Jonny boy says his first link adds much needed context, it is clear Jonny boy did not read this link as the context contradicts Jonny boy’s Xi cheerleading. It is an interesting discussion – but little Jonny boy once again did not bother to read it.

    2. Macroduck

      Johnny is at it again. He links to the SCMP, but is that what he quotes? No.He repeats political commentary that he quoted about a day ago. Johnny agrees with Sach, but so what? Sachs is an economist. When Sachs lectures us about politics, he’s no different than Johnny; just another guy on a soapbox. The only difference is that Sachs has a megaphone.

      So, let’s ignore Johnny’s optical mumbling and think about actual economics.

      One oddity in China’s economy right now is the combination of currency weakness and falling prics. China’s currency has weakened by about 17% vs the dollar over the past 2 years, but that weakness has been accompanied by disinflation, or deflation, depending on where you look. That’s unusual. Currency weakness is typically associated with inflation. Domestic demand weakness is weak enough to overcome the effects of currency weakness. Some of that is obviously due to China’s relatively closed capital account. Anyone who isn’t a flack for authoritarian governments have yhoughts?

      1. JohnH

        Would Tricky Ducky prefer Jamie Galbraith to Jeffrey Sachs? Galbraith served as chief technical adviser for macroeconomic reform and strengthening institutions to China’s State Planning Commission.

        Galbraith writes: “ China in decline? New US narrative is geared towards 2024 election. The White House and American news media are wringing their hands over China’s economic slowdown, which is construed as posing a threat…

        Yes, China’s economy is slowing. It will be hard to scale anything to match the cities and transport networks that are already in place, or the campaign to eliminate extreme poverty. China’s main tasks now lie elsewhere: in education and healthcare, in matching skills to jobs, in providing for the elderly, and in curbing carbon dioxide emissions. They will be pursued in Chinese fashion: step by step, over time.

        So, what is the new narrative really about? It is not so much about China as it is about the West. It is about our lead in technologies, our free-market system, and our ability to wield power and to keep all challengers at bay. It is about reinforcing what Westerners like to believe: the inevitable triumph of capitalism and democracy.

        Above all, it is about our American leaders winning out against “bad folks” who may do “bad things”. It’s a narrative that’s made-to-measure for the 2024 election campaign.“

        What is a foreign affairs narrative really boil down to? Propaganda. And Tricky Ducky swallows (or promotes) it lock, stock and barrel.

        1. pgl

          Just more mumbling with nothing of value to add. But hey – at least the Kremlin gave you your dog food.

  3. Bruce Hall

    I suppose it is possible (not necessarily plausible) to have deflation if the economy was increasingly efficient with more than ample supplies even if demand was there, but that’s not what is happening.

    The Asian giant has struggled to regain economic momentum since the end of COVID curbs in late 2022, and nervous investors have dumped Chinese stocks amid a deepening property crisis and local government debt risks.
    If you build it, they will come hasn’t worked out too well. Being dependent on exports for growth to nations that see you as an adversary might not be a viable long-term strategy.

    1. pgl

      So let’s try to dissect Bruce Hall’s economic advice. China’s consumption and private investment have slowed. Brucie boy says they should rely on less exports to get aggregate demand back up. So is Brucie boy advocating an increase in government purchases? Or is this just another case where little Brucie boy cannot do even preK arithmetic?

    2. pgl

      More on this dumb contention from little Brucie boy that China is too dependent on exports. I guess little Brucie has never looked at exports relative to GDP by nation so let’s inform our favorite Know Nothing:

      China’s export/GDP ratio is only 20%. Germany’s is 50%. Other nations are even more open. Even the world’s export to GDP ratio is 30%.

      So why would little Brucie boy think China’s economy is too open? Oh yea – Kelly Anne Conway needs some moron to defend Trump’s anti-trade position. And with Navarro is jail, little Brucie boy is all too happy to step forward!

  4. pgl

    Little Lindsey Graham is not happy that Krrsten Sinema has called out this MAGA coward for being a two faced piece of trash:

    Lindsey Graham explodes at Kyrsten Sinema: “You’re not convincing me I’m the problem”

    We little Lindsey – you are part of the problem. But the main problem is your boy Trump. People should tell little Lindsey to grow up but something tells me the little boy is incapable of doing so.

  5. pgl

    Has Kevin Drum been reading the stupidity from Bruce Hall?

    What’s left for Republicans to complain about the economy?
    According to Politico, the big Republican pushback against Bidenomics is that, sure, inflation is lower, but the price of food hasn’t gone down. For the record, this hasn’t happened a single time in the past 50 years

    The relative price of food has gone down during lots of periods over the past 50 years. The nominal price of single food items certainly has gone down during lots of periods over the past 50 years. But Kelly Anne Conway will not let little Brucie ever admit these simple facts.

  6. Moses Herzog

    I think Michael Pettis has given some pharmaceutical prescriptions for what ails China. Officials apparently aren’t interested in those answers. And from my viewpoint, that’s incredibly sad, because it means unnecessary suffering for many mainland Chinese.

    But , no worries, the “iron rice bowl” [ 鐵飯碗 ] still exists for Xi Jinping’s closest flatterers.

  7. Moses Herzog

    Hope all of Menzie’s Chinese readers are enjoying the Chinese New Years time.

    I just saw this and found it emotionally moving, so I thought I would share it. I don’t think (other than when I’m drinking) there are many things that will get me much emotional, but I gotta say 2 or 3 moments of this TV show, I got a lump in my throat. If you are one of those people, like my Dad, who with a few rare exceptions was largely bored with American football, and you’d rather do other things with those 3 hours than watching the Super Bowl, I recommend you can spend 1 of those 3 hours watching this show about Johnny Bright, and there’s many worse things you could do with that time than learn about this great man, named Johnny Bright:

  8. David O’Rear

    It is curious how much faith everyone seems to have in Chinese statistics when the news might be bad. CPI is probably the second worst data point in Chinese economic statistics, after the national accounts deflators.

    Is China in deflation? Maybe / probably.
    Do we know why? Probably not.
    Real estate; meat prices; exchange rate; rice.
    Take your pick.

      1. Moses Herzog

        @ Prof Chinn: David’s masters/employers have a script. You’re not supposed to go off of David’s screenplay script to his fictional film Menzie. Come on Menzie, didn’t you mention once there were components of “Logan’s Run” that you liked?? You can do fiction too, yes?? Mr. O’Rear informed me everyone getting a part in his masters’ screenplay will get callbacks around Wednesday. Menzie…….. try to do better at your next group rehearsal.

      2. David O’Rear

        The last time I checked, foreign entities were banned from surveying / polling in China.
        Perhaps that has changed, or perhaps the underlying data is still state-sourced.
        I don’t know.

        1. Menzie Chinn Post author

          David O’Rear: As for quantcast I think they’re using “big data” that has not so far been restricted, so exploiting correlations of data that haven’t been so far controlled by the government, or *are* controlled by the government but are still being released. CCAT is, if you read it, exploiting correlations in data (technically, a common “factor”) that are freely available, and seeing how normalized series correlate in turn with official GDP data. I have links to the CCAT documentation on Econbrowser. Please consult.

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