How China’s Economic Pain Will Help Powell & Co.
Don’t lose faith in inflation’s retreat. Price declines in the world’s second-largest economy will provide a quiet but powerful assist to many central banks.
When China deflation may be good.
Photographer: Qilai Shen/BloombergIt’s too soon to lose faith in the big idea that’s driven markets since December: Inflation is wounded, perhaps mortally, and the next move in interest rates will be down. If you are wavering, take a break from reading the entrails of US consumer prices, ruminating over whether hawks have the upper hand in Europe, or replaying the Reserve Bank of Australia chief's first press conference. You need to look at what’s transpiring in China.
Asia’s largest economy, not long ago considered a contender to supplant the US, is having a rough patch. Growth has struggled after the pandemic, foreign investment is waning, and real estate companies are failing. But the most pernicious development has been deflation. When consumer prices posted a small decline in July, the figure was seen as a blip. It hasn't really let up and January showed the biggest drop since 2009.