China is deflating

[Tedx]

Looks like the worlds second biggest economy is having a serious problem. Deflation. And with too much property and a population forecast to decline rapidly, not to mention US reshoring industry (or at least closer in Mexico) and throttling certain tech, the problem isnt getting better any time soon.

Japan still battles deflation 30 years on after its property crash.

Washington Post article

https://www.washingtonpost.com/business ... story.html

[Mike4]

I often wondered if our 2% inflation target is too low.

Deflation from what I've read about it is more damaging and harder to get rid of than inflation.

At least inflation suits governments very nicely due to fiscal drag and populations as long term borrowings (mortgages) shrink to near nothing.

I've been quite disappointed at how all my borrowing over the last 30 years didn't deflate with inflation as I rather expected! Looks like that's all changing now though.

[Urbandreamer]

Arguably deflation is what we SHOULD expect and desire.

Consider pin's, as in Adam Smiths pin factory.
One man can make 10-100 pins a day. Drawing the wire, cutting it, forming the head and sharpening the point.
Replace that with multiple "men" who specialize. One drawing all the wire, another forming the pin head etc.
Production goes up by a magnitude and the cost of pins fall.
Now use a machine (which of course must be built and paid for), production goes up by another magnitude and price falls again.
This fall in the price of pins is part of what we now call "inflation" as in tracked by the RPI or CPI.

The same sort of thing happened with transistors and integrated circuits. Moore's law was originally about the number of transistors on a chip. Production has increased and costs fallen so dramatically that chips are built into the Rfid labels stuck on the packets of meat that you buy in the supermarket.

Either the price of chips to achieve a given task at the same level has fallen, or people pay a similar price for increased performance. The later is why the "inflation" indexes don't show this as deflation.

Let us be clear, the acceptable arguments against deflation is one about jobs. If people delay or reduce consumption then production and jobs fall. Why would such happen? Well because the value of money in savings rises while so does the value you must find to repay debt.

The unacceptable argument is that inflation erodes debt by eroding the value of that money. Now remind me, just how much debt do governments (those who set the inflation target in the UK) have?

Oh, throughout this I've used the word "inflation" in the sense of the OP, as a measure of the change in prices. Were we to talk inflation as a measure of the increase in money supply we would be having a very different conversation.