According to data released by the Bureau of Statistics on Tuesday, the CPI in February fell by 1.6% year-on-year. For the first time since 2002, it has a negative value. Compared with the year-on-year increase of 8.7% in February, the CPI is a year-on-year.
In theory, a negative CPI increase seems to mean that China officially entered the deflation cycle.
Historically, deflation is often accompanied by economic downturn, stock market decline, decline in nominal income of residents, sluggish consumption, rising unemployment, and interest rates entering a downward channel.
The most cited case is Japan’s deflation for several years after the economic recession in the 1990s, the continuous decline in stock prices, the decline in land prices, and the continued decline in the prices of goods and services, and the macroeconomic recession. Even if the central bank cuts interest rates to zero, it will not be able to pull Japan out of the quagmire.
The Great Depression of the 1930s was seen as a typical example of a cycle of catastrophic decay, so that the Fed’s policy ultimately chose to maintain moderate inflation for economic development and to avoid deflation through various means.
Although from the data point of view, deflation has quietly come, according to the experience of the United States and Japan, it seems that it will be accompanied by a sustained decline in the economy and a significant reduction in the income and consumption of residents. However, we have to pay attention to the fact that more examples show that the “bottom-free abyss hazard†of deflation is a delusion.
Economists at the Minnesota Reserve Bank in the United States in the paper published in 2004 rejected the statement that deflation and recession are related. They carefully collected 100 years of raw data from 17 countries (US, France, etc.) for 5 years. Analysis of time units (to eliminate short-term flaws) revealed only key evidence associated with “recession and deflation†during the Great Depression, while the other 90% of deflation events did not lead to a follow-up of recession. Therefore, the author concludes that “from a broader history, the link between deflation and recession does not exist at all. It is wrong to think that deflation will continuously produce a cycle of vicious decline.â€
Whether these two views really have contradictions, the author believes that this is not the case. Although deflation and recession often have a certain relationship, most deflation cycles are often an external manifestation of cyclical fluctuations in the economy, rather than the “fruit†of the economic downturn caused by the “cause†of deflation.
After the 1930s, due to the development and application of macroeconomic theory, monetary policy and fiscal policy can quickly exert the ironing effect in most economic cycles. Therefore, deflation is only a statistical concept, only economic over-exposure. The collapsed economic collapse will trigger an irresistible deflation and a negative cycle of economic downturn, and only Japan has experienced this economic over-expansion in the 1980s, coupled with monetary policy. Improper use has resulted in a long-term deflation and economic downturn. That is to say, although deflation is difficult, in the general economic cycle, deflation can be effectively avoided through the mutual cooperation of monetary policy and fiscal policy.
What must be seen is that several situations that have led to the interaction between deflation and macroeconomic downturn in Japan in the 1990s have not yet appeared in China: China’s economy as a whole is not in a state of overheating similar to that of Japan, China The asset status of commercial banks is also significantly better than that of Japan. In addition, the effect of monetary policy is obvious, and the fiscal policy is fast and powerful. The pressure for China to enter long-term deflation is very light, and the current year-on-year data of deflation is more accurate. Due to the statistical results caused by the high data in the same period last year, it also contains certain Chinese New Year factors. The CPI level in February and the January average are the same, indicating that the current consumer price level has stabilized rather than continued to decline.
Therefore, the author is more inclined to interpret the negative value of this CPI as a short-term statistical phenomenon, and with the effect of monetary policy and the gradual implementation of fiscal policy, the current deflation cycle will not last for a long time. Investors don't have to worry too much about deflation, which could trigger a sustained economic downturn and a capital market recession.
In theory, a negative CPI increase seems to mean that China officially entered the deflation cycle.
Historically, deflation is often accompanied by economic downturn, stock market decline, decline in nominal income of residents, sluggish consumption, rising unemployment, and interest rates entering a downward channel.
The most cited case is Japan’s deflation for several years after the economic recession in the 1990s, the continuous decline in stock prices, the decline in land prices, and the continued decline in the prices of goods and services, and the macroeconomic recession. Even if the central bank cuts interest rates to zero, it will not be able to pull Japan out of the quagmire.
The Great Depression of the 1930s was seen as a typical example of a cycle of catastrophic decay, so that the Fed’s policy ultimately chose to maintain moderate inflation for economic development and to avoid deflation through various means.
Although from the data point of view, deflation has quietly come, according to the experience of the United States and Japan, it seems that it will be accompanied by a sustained decline in the economy and a significant reduction in the income and consumption of residents. However, we have to pay attention to the fact that more examples show that the “bottom-free abyss hazard†of deflation is a delusion.
Economists at the Minnesota Reserve Bank in the United States in the paper published in 2004 rejected the statement that deflation and recession are related. They carefully collected 100 years of raw data from 17 countries (US, France, etc.) for 5 years. Analysis of time units (to eliminate short-term flaws) revealed only key evidence associated with “recession and deflation†during the Great Depression, while the other 90% of deflation events did not lead to a follow-up of recession. Therefore, the author concludes that “from a broader history, the link between deflation and recession does not exist at all. It is wrong to think that deflation will continuously produce a cycle of vicious decline.â€
Whether these two views really have contradictions, the author believes that this is not the case. Although deflation and recession often have a certain relationship, most deflation cycles are often an external manifestation of cyclical fluctuations in the economy, rather than the “fruit†of the economic downturn caused by the “cause†of deflation.
After the 1930s, due to the development and application of macroeconomic theory, monetary policy and fiscal policy can quickly exert the ironing effect in most economic cycles. Therefore, deflation is only a statistical concept, only economic over-exposure. The collapsed economic collapse will trigger an irresistible deflation and a negative cycle of economic downturn, and only Japan has experienced this economic over-expansion in the 1980s, coupled with monetary policy. Improper use has resulted in a long-term deflation and economic downturn. That is to say, although deflation is difficult, in the general economic cycle, deflation can be effectively avoided through the mutual cooperation of monetary policy and fiscal policy.
What must be seen is that several situations that have led to the interaction between deflation and macroeconomic downturn in Japan in the 1990s have not yet appeared in China: China’s economy as a whole is not in a state of overheating similar to that of Japan, China The asset status of commercial banks is also significantly better than that of Japan. In addition, the effect of monetary policy is obvious, and the fiscal policy is fast and powerful. The pressure for China to enter long-term deflation is very light, and the current year-on-year data of deflation is more accurate. Due to the statistical results caused by the high data in the same period last year, it also contains certain Chinese New Year factors. The CPI level in February and the January average are the same, indicating that the current consumer price level has stabilized rather than continued to decline.
Therefore, the author is more inclined to interpret the negative value of this CPI as a short-term statistical phenomenon, and with the effect of monetary policy and the gradual implementation of fiscal policy, the current deflation cycle will not last for a long time. Investors don't have to worry too much about deflation, which could trigger a sustained economic downturn and a capital market recession.
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