At present, the discussion of inflation and deflation is in full swing in society, and the large-scale printing of money by central banks is even more anxiety-making. In this regard, the author will conduct an in-depth analysis from multiple angles to discuss the causes of the recent deflation phenomenon and the possible future direction.
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Over the past few months, changes in the consumer price index data have attracted a lot of attention. The gain was 1% in February, while it slipped to 0.7% in March. At the same time, the month-on-month growth rates were -0.5% and -0.3%, showing a month-on-month downward trend for two consecutive months. In addition, the industrial producer price index also hit a nearly one-year low in March, rising -2.5% year-on-year.
The data does show signs of deflation, raising concerns. People are concerned about Japan's "lost thirty years" and Europe's long economic stagnation. The emergence of deflation is even more disturbing when central banks continue to inject money. It is puzzling that while the data show deflation, people are not actually feeling that way. The price of meals in the hotel has risen, the price of buns at the entrance of the community has risen, the price of fruits and vegetables in the supermarket has also increased compared with last year, the cost of car refueling has not decreased, and the price of children's training courses has also increased. From the perspective of daily living expenses, there has not been a significant reduction, which makes people wonder, where is deflation?
A closer look at the surrounding consumption and communication with friends reveals that there are three important areas of price decline, which may be a key factor affecting CPI. First, the housing market. Residential prices are a classic example. Although some cities have picked up, the transaction volume is difficult to rise, forming a state of stagflation. In some cities, housing prices have remained stable, but sales have not been high. In some places, home prices are falling, but sales remain weak. The sluggish housing prices and sluggish transaction volume have discouraged those who invest in house speculation, and buyers who just need to buy houses also choose to wait and see, which in turn has led to the sluggish consumption of decoration, furniture, home appliances and other large consumption, which has become one of the main reasons for deflation.
Secondly, the automotive market. Under the influence of Tesla's price reduction, domestic new energy vehicles have comprehensively reduced prices or launched preferential promotions, further impacting the low-end fuel vehicle market. Starting from Dongfeng Motor in Hubei, the price of fuel vehicles nationwide has generally declined, and this price reduction tide has continued to spread, which not only stimulates the rise of the consumption index, but also breeds a wait-and-see mentality among consumers, which may become an important driving factor for the decline of CPI in the future.
Finally, the pork market. As an important part of the Chinese table, pork has a far-reaching impact on CPI. In the composition of the mainland's CPI, food accounts for about 40%, of which pork prices account for about 10% of the entire CPI. At the beginning of this year, during the trough of pork prices, the market price has fallen below 10 yuan per catty, which directly lowered the CPI level.
In summary, it can be concluded that the future trend of the continental CPI will mainly depend on the performance of the housing and automobile markets. Price changes are not the only factor, market expectations and confidence are equally important. Only when people become confident in the stability of housing and car prices will consumption gradually rejuvenate and the money stored in banks will be used for consumption. As for the pork market, the pig cycle will also pass over time.
All in all, an in-depth analysis of deflation shows that price movements in areas such as housing, automobiles, and food play a key role. However, there is a difference between how deflation feels and what real life feels like, which requires us to consider it from a broader perspective. In the future, improved market expectations and confidence may be the key to getting the economy out of deflationary predicament. If you have more insights on this issue, please leave a comment below to discuss this high-profile economic phenomenon.