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"But deflation can hurt economic growth, as consumers will delay purchasing products if they think they will be cheaper in future."
Not if people are already mostly only buying what they need to survive.
Which is not the case for most people and certainly not the case for businesses and banks.
You're being downvoted but the amount of people I see in my work and personal life that barely make ends meet but are buying garbage on Amazon constantly is staggering. Prime days especially I was shaking my head at people bragging about the deals they got.
Using the word "deflation" like it's a bad thing for citizens to be able to afford the things they need to live. That's capitalist propaganda for you. We're only happy when the blessedly wealthy get to have a good life.
You don’t see how it’s a bad thing for people to have zero incentive to put money back into the economy? Everyone hoarding money and trying to spend as little as possible will surely have good results!
People still need things, just because their money is getting more valuable doesn't mean they're gonna skip this weeks groceries, the next haircut, car repairs, etc. This isn't a problem that's going to grind an economy to a halt, especially a command economy. The more worrying thing for China I'd imagine would be the total exports dropping which is also supposedly happening.
That grocer likely has loans which are now much more expensive in real terms. Same with the farmer who sells their goods to the grocer. The manufacturer of parts to repair cars also has them. With deflation, all of them bring in less money but have increased real costs. So they cut costs by paying workers less or more likely laying them off. It's good for banks though. They have loans out that now get amazing returns and can simply stop loaning money out because just having the money sit their provides a pretty good return.
So long as unemployment stays relatively stable, deflation might be a good thing for us. If unemployment rises significantly as a result of deflation, then the discounts we'd get might not be worth the lost income. Since employers control employment in the lack of unions, they hold the power to remove income from workers to offset the falling profits that result from deflation. I wouldn't mind extra deflation if I lived in a union country.
Youth unemployment is already really high in China. With deflation, you could expect unemployment to also rise in other age groups.
Deflation is a bad thing. It also doesn't necessarily mean things get more affordable for people.
It's a serious issue and is not good for the country or the people in the country.
In fact it's usual that the central banks main goal is to stop deflation. That's why central banks are usually separated from government policy also. Deflation is such a huge concern the central bank can overrule the wishes of the government and put in measures that will lead to a recession. Deflation is worse than recessions.
Economics is a lot more complicated than all the memes on this website of. Capitalism bad, communism good.
It's a bad thing because the economy slows down and companies have less income, which means less pay for the workers.
Yer it wont trickle down!
Your employer also makes less which means a lay off or reduced pay. It's good for banks though since they make good returns on existing loans and do not have to lend it any new money to see good returns. Glad you want things to be good for bankers.
If the deflation is just a market correction after exaggerated inflation (retailers raising their prices more than general inflation to increase their short term subs) then it's no big deal. Prolonged deflation can be bad, as that causes too much saving and not enough spending, which can really hurt the economy and people because of how it takes money out of circulation.
In an economy, the more money can circulate, the more good it can do. I use my salary to pay for for and things, that money then pays the employees of the businesses I went to, and those employees also spent that money, and so on. At each step, both participants normally get a net benefit: I can eat, and the employee can also spend the money they get from me to eat, etc. As long as the money circulates, it keeps doing good. When it stops circulating, due to being put into savings, investments or real estate, it stops doing good (or it does less good). The cycle slows down or stops.
That's why a small amount of inflation (maybe 1-2% ? Not sure what's optimal) is actually healthy, because it puts pressure on people with money to spend it before it loses its value, instead of hoarding it.
This is the opinion of most macro economists today, but it's not universally accepted. Macro-economics is not nearly as scientific as micro-economics, and some people will say that its models are just about who can tell the most convincing story (or the story that's the most convenient for those in power)
There are some people who point out that things like electronics have been undergoing rapid deflation for decades and this has not caused people to stop purchasing them. The economy is a chaotic system and anyone who claims to be able to predict it's outcomes is selling something
In an economy as tightly controlled as China, how much does deflation even matter?
Also I wonder how everywhere else having inflation will interact with this. Is China just getting affected because the rest of the world can't afford basic necessities anymore? The article kinda touches on reduced demand from countries with inflation abroad causing this, but also doesn't really explain anything other than going "lower number is uh bad"
China has built out enough infrastructure where it really needs consumer demand to take over as a major economic engine.
Nah, that is liberalism. https://thenextrecession.wordpress.com/2023/08/02/china-consumption-or-investment/
it matters to the people whose lives it impacts, and they're not going to be happy about the impacts.. of course deflation can occur.. they will try to use artificial means to control it, but they will still have to choose how to pay for things.. they can't produce things for free just because the economy is controlled.. it's a dire circumstance for them as their property market collapses, and unemployment is at insane levels.. deflation is a nightmare in that scenario, because it is the further contraction of an already faltering market..
"Won't someone think of the retailers?!"
God I wish my cost of living could deflate a bit.
Economists say its bad but I don't believe them.
I don't think you need an economist to understand why it can quickly lead to a runaway disaster... Imagine you see a car price going down every week by 1k, do you buy it this week or next week? The competitor what do you think they need to do to compete? Lower their price too but wait everybody is waiting for next week, so literally nobody is buying anymore ... So as a company you just start to fire people or close shop as quickly as possible, so a lot of people are now on the market so their labor value also goes down, ie. the salaries are dropping... This tsunami of jobless people would they buy a car this week you think? So companies need to continue dropping the prices...
Except if you think even a few more depths about this... you would understand people have needs. I would be happy to buy a car now if I need it now and can afford it. Your argument only works for goods that are not a necessity to life.
Sounds like an investor's problem.
I buy a car if I need a car, not because I want to opportunistically ride the market dips so that I've eked out a profit once the economy's gone back to being unsustainable.
Besides, consumers get ripped off by bad deals all the time.
Imagine seeing a car price go up every week. Interest rates go up a full point every 6 months. Next month you might be able to afford it but next month it's gone up 4k and another point.
Companies are making money and people keep buying cars so they keep increasing prices.
I get your point but when you as a person are removed entirely from the equation then you no longer have a stake. How many Americans have no savings, no investments and work a miserable job that doesn't pay the bills? Do you think they give a fuck if it all comes crashing down? They probably do but a lot less than everyone else.
My last two brain cells dying after seeing half of the comments saying that deflation is actually good.
To be fair... us common folk keep hearing stuff about the economy.. but the only outcome at the end of the day is we get screwed in higher prices, lower wages, fucked up climate for our kids. People get tired pretending this Economy isn't rigged by wall street and the U.S Govt or people close to it.
This is the best summary I could come up with:
The Chinese economy is expected to have slipped into deflation amid signs of a faltering post-pandemic recovery, according to market forecasters.
This means retailers who stocked up on goods expecting a surge in demand after pandemic restrictions were lifted are now under pressure to cut prices.
Homin Lee, senior macro strategist at Lombard Odier, predicted July’s CPI inflation report could show “outright deflation”, with prices slightly lower than a year ago.
In the UK, consumer prices were 7.9% higher than a year ago in June, as households suffered a long run of falling real incomes.
Trade data released on Tuesday showed that China’s imports and exports both fell more sharply than expected in July, adding to concerns over the world’s second-largest economy.
Jim Reid, strategist at Deutsche Bank, said the trade data highlighted that the Chinese economy is being “dragged lower by weakness in global demand and a domestic slowdown”.
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