AS THE world’s biggest exporter, China dominates global shipments of everything from smartphones to sofas. Recently, attention has turned to another Chinese export that appears to be washing up on distant shores: deflation. China’s producer-price index (PPI) has been falling for 41 months straight. Economic growth is slowing; many Chinese industries are suffering from overcapacity; its ravenous appetite for commodities is waning. All that slack must surely be putting downward pressure on prices across much of the world.
It is not the first time that China has been accused of exporting deflation. Before the global financial crisis, China’s impact on world prices seemed a good thing, making televisions and fridges more affordable. Now, it is seen as baleful. The worry is that anaemic inflation is hurting the world economy. Consumers have less incentive to spend, companies have less reason to invest and debts, fixed in nominal terms, remain onerous.
Yet several studies show that China was never quite the deflationary force that it was said to be before the crisis—or at least that it caused both inflation and deflation. By...
from The Economist: Finance and economics http://ift.tt/1UpfNac
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