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In recent years, the threat of inflation has been swept around the world, and across the United States and Europe, central banks have been sparing no effort to raise interest rates, but not as well as desired. All this seems to be to compensate for the continuous over-issuance of money over the past few years. Worryingly, however, China could be in a similar situation, with money supply increasing by $31 trillion in the past year alone, meaning we could face higher price pressures. But what is really worrying is not inflation, but deflation.
Deflation doesn't need an esoteric economic definition, just look at the actual situation. In Japan, for example, prices have risen slowly and incomes have barely grown, which has led to a decrease in people's willingness to consume, unwilling to have children, buy houses, and even be unwilling to work. This situation has brought Japan's economy to a standstill for the past 30 years, so much so that the Bank of Japan has always made stimulating inflation its main goal. We are starting to see a similar situation compared to Japan.
In the past three years, the whole world has been affected by the epidemic and suffered setbacks to varying degrees. Due to the uncertainty of the future, people's willingness to buy goods has decreased, which is reflected in various aspects, such as more people preferring to cook food at home, which is both healthier and more economical. Data from the Consumer Confidence Index show that since last April, the index has fallen by almost 30% year-on-year, even if the base is already low. By the beginning of the year, the year-on-year decline was still as high as 21% to 25%.
Consumer confidence is closely related to people's expectations of future income. In recent years, the employment rate on the mainland has been on a downward trend, with many people complaining about the difficulty of finding jobs and highly educated graduates finding difficult job opportunities. In addition, the development of science and technology has also caused an impact on some traditional industries, such as artificial intelligence, which has reduced the number of jobs available to some extent. Even banking jobs have been drastically reduced by intelligence. This situation led to the total retail sales of consumer goods data began to show negative growth in the second half of last year, especially in the fourth quarter of last year, which fell year-on-year for three consecutive months.
Monetary stimulus is an inevitable solution to deflation, however, we are not short of money. Over the past year, the total amount of M2 money has grown significantly, increasing by 31 trillion yuan. The question is how to get these funds to flow into the hands of ordinary people, and only when there is enough money in the hands of ordinary people will they be willing to spend and have confidence in the future. At present, most of the money is still stuck in the financial system, which can lead to the formation of virtual economy bubbles. In addition, we need to be wary of not over-stimulating the real estate market, which has been flooded with money over the years, which has instead inhibited the growth of consumption. Only by truly promoting consumption growth can all walks of life flourish.
All in all, deflation has become a serious challenge for the world, not only in China, but also in the United States, Europe and other places. To deal with deflation, we need to stimulate the economy more aggressively and ensure that monetary policy actually benefits ordinary people, thereby boosting their consumer confidence. Only in this way can we get out of the shadow of deflation and ensure economic stability and prosperity. In order to achieve this, a series of effective policy measures are needed to ensure that capital flows to the real economy, while avoiding over-reliance on non-real sector sectors such as real estate. This will be a complex and urgent task that requires the joint efforts of all parties to ensure sustainable economic development and improvement of people's living standards.
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