February 24, 2024 | China Exporting Deflation To The World

Consumer prices in the world’s second-largest economy fell 0.8% in January compared with a year earlier–the most significant deflation in over a decade.

With demand weak at home and inventories piling up, Chinese producers have the incentive to dump excess goods onto world markets, and they are.

Chinese export prices have dropped steadily since late 2022 and were -8.4% year-over-year in December (customs data, shown on the left).

China is the largest trading partner for many countries and tends to lead price trends in other exporters that compete for business. See Cheap Chinese Goods are Becoming a Costly Problem. Exhibit A: Hong Kong.

The opposite of what happened during the pandemic, deflating prices and weak demand for finished goods tend to reduce corporate profits.

Danielle Park February 24th, 2024

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