- China slipped into deflation Tuesday, adding to Beijing's list of economic woes.
- But falling prices there could end up being good news for the rest of the world.
China slipped into deflation Wednesday – yet another sign Beijing is struggling to revive the country's faltering economy after it called time on its harsh zero-COVID lockdowns at the end of 2022.
However, falling prices there aren't necessarily bad news for everyone else.
It's true that the world's second-largest economy is suffering an almighty slowdown that is expected to drag on global growth and chip away at the earnings of Apple, Nike, and several other corporate giants.
But several analysts have said that the silver lining to that cloud could be that Chinese deflation catches on elsewhere, aiding countries in the West in their ongoing battle against soaring prices.
The fight against inflation isn't over yet
Inflation was economists' number one concern for much of 2022 – and it's still a major source of anxiety now, with key commodities tied to food and gas costs ticking up in July.
Crude oil jumped after several straight months of declines as a surprise production cut by Saudi Arabia drove a drop in global supply, and wheat prices spiked late in the month after Russia pulled out of the Black Sea grain deal and started attacking Ukrainian ports.
Although the US Consumer Price Index has started to cool rapidly in recent months, the Federal Reserve has warned it's still on guard against potential flare-ups and likely won't be able to start slashing interest rates until the middle of next year.
Meanwhile, prices are still rising rapidly across much of the West, with the UK and eurozone economies posting inflation rates of 7.9% and 5.5% respectively in June.
In China, prices are falling rather than rising
Data from the National Bureau of Statistics published Wednesday showed China's factory-gate prices, as measured by the producer price index, plunging 4.4% year-on-year in July for a tenth straight month of declines.
And consumer prices fell for the first time since February 2021 with a 0.3% drop, according to the government agency.
Deflation is the latest economic red flag for Beijing, which is also grappling with stuttering growth, a property-sector crisis, and soaring unemployment amid signs that China's post-COVID economic reopening is going badly awry.
When prices are falling, rather than rising, consumers are likely to hold off on buying things with the hope that they'll become cheaper later on, with that delay dragging down economic growth.
But China's deflation problem could boost the rest of the world economy – with other countries now able to buy cheaper goods from the world's largest exporter, and that potentially filtering through to the average shopping basket.
"If the falling price level feeds through into the cost of Chinese exports, then China's most significant export to the rest of the world could become disinflation," Hargreaves Lansdow n's head of equity funds Steve Lansdown said Wednesday.
Deflation is good news for central bankers in the West
So, deflation in China could give the Fed, the Bank of England, and other monetary policymakers a much-needed helping hand in their war against soaring prices.
Falling prices in the world's second-biggest economy could "give central bankers in the US, UK and Europe pause for thought when they weigh up their next steps," according to AJ Bell investment director Russ Mould.
If cheaper goods from China start to pull global inflation down to more manageable levels, there becomes less of a need for central banks to carry on raising interest rates, bringing an earlier-than-expected end to an era of tightening that has dragged down global growth.
So deflation in China might end up being bad news for Beijing – but a blessing in disguise for the rest of the world.